Forget “Start-ups”, it is all about “Scale-up” and Foreign Direct Investment (FDI) to reduce unemployment in Kosovo

As recognised in most Kosovo strategic development documents, unemployment, the associated poverty and low GDP are the most pressing problems in Kosovo. The real unemployment figures are difficult to pin down when the informal economy is as persistent as it is in Kosovo, but according to the Labour Force Survey (2012) the total unemployment rate is 35.1% (male 28.1%, female 40.0.%) Among youth (15-24 years) the unemployment rate stands at 55.3 %. In Kosovo, about 37% of the population lives in poverty (on less than €1.42/day) and over 17% lives in extreme poverty (below €0.93/day). Current economic growth hovers around 2% (2013), driven mainly by government investments (i.e. Kosovo-Albania highway), private spending and privatization. This is far below the economic growth target of 7-8% per annum set out in the Kosovo Economic Vision 2011-2014 Action Plan, a growth rate deemed necessary to make a dent in unemployment. In conclusion, there remains an urgent need of additional economic growth to create more jobs in Kosovo.

Until now, the Kosovo Government and donor agencies have pursued three broad employment creation models with the aim of reducing unemployment in Kosovo.

Model One includes using public spending to boost employment. Government is investing in the construction of public infrastructure, which has created on-off booms in employment in the construction sector. Another deliberate policy has been to expand public administration, increasing public sector employment. However, employment created as a result of public spending is hardly sustainable and completely dependent on the private sector’s capacity to generate adequate tax income for the state to finance public sector salaries and benefits. With a dwindling private sector and falling revenues from Customs Office it is difficult to imagine where the necessary income will come from in the future to finance the operations of an inflated public administration.

Model Two, driven by the donor community, is based on the idea that unemployment can be reduced by turning unemployed persons into self-employment entrepreneurs. Endless donor funded projects have promoted entrepreneurship and through business plan competitions and grant schemes encouraged Kosovars to start-up and register their own companies. To facilitate and support the creation of new enterprises is generally a good idea, as long as these companies stay alive, grow and employ more staff over a longer period of time. This is not happening in Kosovo. In fact, the large majority of start-ups are micro-enterprises, most of them employing less than 5 persons.

According to recent research, the Start-ups in Kosovo appear not to be growing, which means they are not generating additional sales and not employing more staff. The enterprises reach a point in their early development and stagnate. Consequently, a very large number of poorly performing companies linger on the market, mainly thanks to continuous financial support by family and other non-market sources. At this point the company can best be described as operating like a hobby rather than as a profit-seeking business, and as a hobby the ‘company’ takes on more of a social role, rather than economical.

According to the quarterly reports of the Kosovo Office of Statistics, the favourite economic activity among newly registered companies is trade, which in the context of Kosovo means import of goods and selling on the already saturated domestic market. This trend only adds to the already large trade deficit of the country. This is hardly the entrepreneurial revolution that the donor agencies had in mind, and definitely not the core of an employment boosting public policy.

Model Three is focusing on improving the competitiveness of established SMEs in Kosovo.The logic here is simple, better performing SMEs will sell more, and further expand production and employment to satisfy growing demand for their products/services. Well, this is not happening either in Kosovo. In fact, in 2011, the Business Registry reported that there were 100.700 registered firms in Kosovo, while the Tax Department reported that only 18.170 paid taxes. This means that the remaining 82.000 enterprises are either operating illegally, or they are no longer active. Most likely they have closed down and just not bothered to off-register at the Business Registry.

The main reasons for this dropout among private companies in Kosovo are plentiful, presented below as a collection of internal and external factors constraining SMEs growth in Kosovo.

External factors:

1. Protected market

Kosovo SMEs operate within a market that is protected by the fact that it is very small in volume, with high transport and import costs, and as a result it is off the radar of larger international companies. This results in consumer prices that are generally high by EU standards. Kosovo producers, with low wage costs are able to achieve good profit margins despite showing generally low levels of competence, efficiency and effectiveness. The fact that some companies can generate a profit despite inappropriate production facilities and ineffective organisations, leads the companies to believe that they are competitive, while the main reason for their ‘perceived’ competitiveness is the lack of international competition on the domestic market.

2. Business Enabling Environment

In its 10th report, the World Bank’s Doing Business index 2013 highlights that good business regulations enable the private sector to thrive and businesses to expand their transactions network. However, if poorly designed, the same regulations that were put in place to safeguard economic activity and facilitate business operations can become obstacles for businesses. The economies that rank highest on the ease of doing business are not those where there is no regulation. Rather, the top scorers are those that have managed to create rules that facilitate interactions in the marketplace without needlessly hindering the development of the private sector. In essence, ‘Doing Business’ is about SMART business regulations — ‘Streamlined, Meaningful, Adaptable, Relevant, Transparent’ and not necessarily fewer regulations. The Kosovo Government’s efforts in improving the business environment and strengthening the private sector were recognised in the World Bank’s “Ease of doing business” 2013 report.

3. Rule of Law (non-loyal competition)

A RIINVEST (2010/11) research project among 800 micro, small and medium sized enterprises found that the main external obstacles for development of SMEs in Kosovo centred around access to finance, overall economic situation of the country, unreliable supply of electricity, non-loyal competition, and foreign trade circumstances. Economic activity operated by non-registered entities remain a problem not only for the private sector competitor, but for workers employed by these fly-in-the-dark companies have no rights and the state is losing out on tax revenue.

4. Lack of Business Support Structures

In other countries, SMEs would find financial support and technical assistance in a network of Business Support Structures, such as business centres, business incubators, technology parks, etc. In Kosovo, there is no viable network of business support structures in place, and whatever structures have been created are mostly likely donor funded with limited sustainability beyond the duration of the project. This leaves the SME community under-supported, which in turn limits their skills development, competitiveness and potential for growth.

Internal factors:

1. Family in management

Structurally, the biggest problem that most companies in Kosovo suffer from is the habit or norm to involve only family members in senior management. The pronounced lack of trust of other people results in the hiring of family members to managerial positions no matter their professional qualification. The private sector will never be able to develop competitiveness nor grow if the SMEs do not hire managers because of their professional qualifications, skills and experiences. The principle “Best person for the job” needs to be introduced to create a certain level of management and corporate professionalism, which in turn will lead to improved corporate performance and competitiveness.

2. Low price perception

In Kosovo, the SMEs almost universally believe that only (relatively) low-priced goods sell, despite the evidence to the contrary on the shop shelves. Most of their products are dull, conservative and “me too”, poorly packaged and promoted. Price is understood by everyone and easy to change, whereas parameters such as packaging, distribution and product quality are much more complex in nature. Using price as the only parameter is very risky and does not create a unique competitiveness about the product, rather the products remain easy to copy and to out-compete.

3. Lack of focus

There is a tendency among Kosovo SMEs, upon achieving a state of relative success, to start a process of diversification into business areas in which the management has very limited or no knowledge and experience, rather than staying true to its original mission and becoming true experts in the core activity.

In the end it is not uncommon that a company is involved in as wide business areas as furniture production, construction, food-processing, ICT, hotels and agriculture. Spreading the risk into different business areas is not a problem in itself, but trying to intervene into the smallest problem in such very different business areas is a serious problem for management. Management will never develop the required knowledge, skills and competence if they have to cover such a broad range of business areas. Instead the enterprise ends up being managed by unqualified managers and will never develop competitiveness.

To develop competitiveness the SMEs need to focus on specific business areas and then distribute available resources into this area. Any business needs the management’s full attention to develop unique competences and consequently develop competitiveness.

4. Lack of strategic outlook

To survive, let alone be competitive, companies need a strategic direction, guiding them towards the future. In Kosovo, there is a tendency among SME owners and managers to develop their businesses without strategic thinking or plans. As a consequence, they leap onto new perceived market opportunities without proper consideration and analysis of the trends and characteristics of the specific market segment, the existing competition, or reflection on their own internal resources and competences in relation to the new business area.

In fact, without a strategic plan telling you were to go, all new, ad hoc opportunities appears acceptable and compatible to the SMEs original mission. SMEs tend to develop accidently as a result of whom they met with or what they have seen, which give rise to the “copy-our-neighbours” development concept. In turn, too many swimming pool, hotels, gas stations and retail shops in a small, constant market, means the market will quickly be saturated and all those that have invested will find it increasingly difficult to earn back their money.

5. Lack of international standards and certification

Many SMEs regard international standards and certification as un-necessary (just another diploma on the wall) and as a cost to the company, while quality management systems and corresponding standards offer exactly the organisational and management tools and processes that most SMEs in Kosovo desperately need to manage growth.

Furthermore, international buyers, in particular in the food industry are requiring that Kosovo SMEs fulfil HACCP and other food safety and food security standards, otherwise they will not take the risk to buy their products, no matter the price. It should be noted here that Albania four years ago introduced a law that requires all food products sold in the country to be produced according to HACCP and certified as such. There is a need among many Kosovo food producers to renovate production facilities and invest in machinery and equipment, which are in line with HACCP and other relevant standards.

6. Training fatigue

Many SME owners and managers do not have formal education directly related to managing a company. The need for education and training are recognised but there is a reluctance to participate and invest in training activities. The SME sector in Kosovo does not believe in formal training as an important way of establishing competitiveness.

However, at the same time, there are no indications to suggest that the SMEs sector will be capable to achieve competitiveness if they do not change their attitude towards training or life-long learning in general. Until now, Kosovo SMEs have been exposed to far too many general or irrelevant training events and as a result they have developed a resistance towards capacity-building. In the future, support interventions should be directed towards individual companies, or small groups of companies, and training should be combined with hands-on-consultancy.

7. Over-reliance of grants

Among Kosovo SMEs, there is a general belief that every company is entitled to receive some kind of donation, from national or international sources, and that this source of financial support is something very normal. In fact, some managers feel cheated and unfairly treated if they do not receive grants. This attitude is common and is a result of the many donor-funded projects that have been initiated in the SME sector in Kosovo.

In some cases one gets the impression that free money and grants are the main drivers of company development. This is a very worrying and dangerous attitude to have in a competitive business environment and might even endanger some of the companies’ future as they apparently are sitting and waiting for free money rather making investment using their own funds or presenting their business ideas to the banks.

In summary, I believe we can safely conclude that until now Government economic development strategies and programmes in combination with the work of a large collection of domestic business associations, business support organisations and donor funded private sector development projects have been general unsuccessful in overcoming even a small number of the upper mentioned external and internal constraints on private sector development in Kosovo. As a direct consequence of this collective failure, there is no real private sector growth, adequate to sustainably reduce unemployment in Kosovo.

Along the same lines, the UNDP in its recent Kosovo Human Development Report 2012 notes that “Kosovo’s marketplace is unbalanced”. The report concludes that there has been “a high emphasis on enterprise creation in an environment already saturated with low value-added tertiary sector firms.” The report recommends “a leap in size from SMEs” and the creation of a private sector that is more dynamic.

The need for company growth in Kosovo is obvious, and I think we can all agree that more and better performing Kosovo companies is something that is systemically desirable and represents ‘good change’. However, practical project experiences, macro-economic realities and statistics show that we still have not been able to deliver on the free market’s promise of employment and economic growth in Kosovo It is now the time to look beyond the obvious internal and external constraints and consider they notion that there may be non-business related factors that make corporate change less likely to occur in contemporary Kosovo.

For example, we base our interventions in the free market in Kosovo on the assumption that company owners want to expand their businesses internationally, and that they would like to move into manufacturing. I would argue that this is a fundamentally flawed assumption, which causes much grief for donor funded projects that are designed to strengthen the competitiveness among Kosovo SMEs and to enhance their internationalisation. The built-in challenge lays in the fact that the number of companies in Kosovo whose owners and managers are both willing and capable of manufacturing and exporting is very, very limited.

At the moment, importers and retailers dominate the private sector in Kosovo. These companies buy products that are manufactured internationally, import and sell them to end consumers in Kosovo. It is a small, saturated and protected market that offers the few, domestic retailers large profit margins, at limited risk.

Manufacturing is a whole different ball game. Here, a continuous search for productivity improvements is pushed to the fore of the business model. Profit margins are as low as 5%, and there is no margin for error. To make profit the companies must achieve economies of scale, continuously reduce costs and increase productivity. Pushing the costs onto the customers, hidden in a higher selling price, is not an option.

As such, trade and manufacturing represent two different business worlds, which require two different sets of management styles, organisations and human resources to function properly and generate growth.

There is another historical fact that makes the transformation to manufacturing more complicated in Kosovo than in most other transitional economies and that is the lack of industrial managerial experience within the population. Due to the apartheid like economic system in Kosovo in the pre-1999 era, very few Kosovars were allowed into managerial positions within the Yugoslav industries.

To modernize management and machinery parks of old state-owned factories in other transitional economies were still relatively straightforward and achievable as it could build on the production experience of layers of managers and workers. Without this collective memory of how to manage large manufacturing units, purchase of raw materials and organize a large number of people, for very small profit margins and meet tight delivery-times, to construct a completely new manufacturing base in Kosovo becomes monumental challenge. To overcome this challenge successfully will require comprehensive and coherent Government, donor agencies and private sector actions. This is the most formidable economic development challenge in Kosovo at the moment, but it is also the key to solving the country’s chronic unemployment and associated poverty.

  • Where will systemic change in the private sector emerge?
  • Who will lead the charge for change?

As I see it, and looking ahead, private sector development in Kosovo should focus on two main themes in order to have any real positive impact on economic growth and employment.

Theme One involves the strengthening the competitiveness of those few companies in Kosovo that are already exporting products or services (no matter the sector) and those companies that show themselves to be export-ready, in will and capacity. Until now, too much time, energy and resources have been wasted on corporate dead-ends. It’s time to assume a straightforward, straight talking business approach to business development.

The guiding light for the intervention should be clear to everyone. Is the company owner/managers willing to change the way they manage and run their business in order to manufacture products or produce services for export? If deemed yes, do they have the managerial, technical and financial capacities to become a large-scale manufacturer with limited external technical and financial inputs? If the answer is again positive, the company has qualified for technical and financial support by donor and government funded programmes. The final aim of this intervention should be to increase international sales, increase production volumes, leading to an increase in employment and economic growth.

Theme Two involves Foreign Direct Investment (FDI) in manufacturing. Until now, FDI is seriously under-performing in Kosovo. According to the Central Bank of Kosovo (CBK), FDI in Kosovo increased to € 143.4 million during the first six months of 2013. Turkey has replaced Germany as the main foreign direct investor in 2012, followed by Switzerland, the United Kingdom and the United States of America.

Kosovo is lagging behind other countries in the region, as a destination for FDI. Despite the global decline in FDI, the foreign direct investments in Bulgaria for 2012 amounted to €1.478 billion, showing a growth of 13%, compared to 2011. FDI to Romania totalled €2.7 billion in 2013, the highest level in the last four years, according to data from Romania’s Central Bank. In Macedonia, FDI slumped from $410 million in 2011 to only $111 million in 2012, but is expected to grow above €300 million in 2013. Serbia attracted $ 2.71 billion of FDI in 2011, becoming the best performer in Southeast Europe, according to UNCTAD. In 2012, FDI created 10,302 new jobs in Serbia. In the same year, the FDI influx in Albania was $957 million.

Again, investment promotion in Kosovo is in desperate need of a re-think and a new systemic approach. The old model, driven by endless one-off promotion events in all corners of the globe, basically using a shotgun marketing technique in hope of hitting something sometime, is simply not delivering the investors.

A new model is required, one that pools the resources and development objectives of multiple agencies and institutions in Kosovo and among its international partners. Yet, before introducing this new FDI boosting model, it is important to have a clear view of the magnitude of the challenge ahead in promoting Kosovo, as a destination for investments, preferably in manufacturing.

A simple competition analysis would be a useful start. We must know exactly what dynamic FDI promoting countries like Macedonia and Serbia are offering incoming investors, and we must match their offers of incentives. We must design service and support packages that make Kosovo attractive in comparison with the regions two FDI powerhouses, Romania and Bulgaria. Both countries are members of the EU, which automatically answers a large number of important legal and financial questions for the potential investors. Kosovo must compile practical responses and answers to the same questions to reduce the investors’ perceived risks, otherwise the international investors will continue to play it safe and invest in EU’s most recent Member States, where salary levels are not significantly different from Kosovo.

So, what are the benefits of FDI in manufacturing beyond its obvious contribution to employment creation and economic growth? One of the most important side-effects of increased foreign ownership and management within the private sector in Kosovo will be the introduction of more modern management styles, organizational thinking and commitment to employees as a key corporate resource. In order to manage a large factory, employing hundreds of workers, and producing products and services over a longer period of time with consistent quality, there is a need for middle management and workers specialization. By working for the international manufacturers a new generation of modern corporate managers will be created in Kosovo, something that is sorely missing today and acts as a huge constraint on the overall development of the private sector.

Another direct positive impact of more FDI in manufacturing will be the creation of a substantial domestic sub-supplier market. In order to reduce costs, the international manufacturers will aim to source as much as they can from local producers, rather than importing products and services from abroad. By working for and supplying the international manufacturers, the Kosovo sub-suppliers will learn to fulfil international requirements on price, quality, quantity and delivery-times dictated by the end customers. In other words, producing for international manufacturers in Kosovo will pull the Kosovo sub-suppliers into international supply chains, in which they will be required to adhere to international rules, standards and requirements.

Key actors and their contributions to a new FDI boosting model in Kosovo

FDI Boosting model

The Government of Kosovo must roll out the red carpet for anybody establishing a manufacturing unit in Kosovo. At a minimum, the government incentives must match what, for example, the Serbian government is offering investors, which include the following financial, tax and other incentives:

Serbia_incentives to investors

(Serbia Investment and Export Promotion Agency, 2013)

These are the incentives offered by the competition in the region. To offer the same or better incentives then become an absolute pre-requisite for Kosovo, otherwise it is not in contention for FDI. To finance this new portfolio of incentives there is really only two sources – the national budget and international donor agency support. It is basically a national development policy decision to be made and implemented, and one that should be encouraged and supported by the international donor community, which has already invested heavily in trying to build up a viable private sector in Kosovo, with limited success.

On the local level, there is much that can be done and offered by the municipalities to attract FDI. Again, local authorities must roll out the red carpet for investors in manufacturing. This could include free access to land for construction, even access to pre-fabricated premises tailored to host the production of shoes, apparel, furniture, etc. The municipalities could also contribute by connecting each manufacturing unit to the necessary infrastructure, such as roads, water, electricity and sewage. Again, to finance these types of infrastructure investments, the municipalities would either need to allocate resources from the municipality budget or rely on international donor agency support. The recent Government decision to instigate Economic Zones in the municipalities of Mitrovica and Gjakova could be interpreted as a step in this direction.

Enter the international donor agencies, whose mandate it is to support the development of the private sector in Kosovo into an engine for sustainable employment, economic growth and constant tax revenue for the state. However, relevant statistics and indicators show that there is no viable private sector in Kosovo today, let alone one that can deliver on the key societal development indicators, such as employment, economic growth and decreasing poverty.

In other words, we are currently failing in our mission to support Kosovo institutions and society in building a productive private sector. Again, it is time for a serious re-think on policy and development methods. It is also time that we make full use of the expertise, skills and successful business models of multinational corporations in our respective home countries, and involve them fully in the development of a viable and competitive private sector in Kosovo.

In countries with a clear economic focus on export and internationalisation, such as Sweden, there exist a range of state agencies with the mandate to support domestic companies in their aspiration to expand internationally. In Sweden, domestic companies can find support to realise their export and internationalisation ambitions from agencies such as Swedfund and Swedpartnership:

Swedfund is a company owned by the Swedish government, which provides risk capital, expertise and financial support for investments in emerging markets in Africa, Asia, Latin America and Eastern Europe. Swedfund invests with strategic partners who want to start up or expand their business in a new market. Swedfund also offers financial support to Swedish SMEs in the form of loans for investment in knowledge transfer and equipment. The project must be based on long-term commercial cooperation between the Swedish enterprise and a company in the target country. All investment decisions are made in a professional, businesslike manner. (http://www.swedfund.se/en/)

Swedpartnership is a fund administrated by Swedfund that offers financial support to small and medium-sized Swedish companies in the starting phase of new business cooperation in the developing markets of Africa, Asia, Latin America and Eastern Europe. The Swedish companies have the opportunity to apply for financial support for investment in knowledge exchange and equipment. Swedpartnership can finance business partnerships with local suppliers or distributors. A project may also include a joint venture or the establishment of a solely owned affiliated company. (http://www.swedpartnership.se/english/)

We can assume that other export-oriented economies in the EU and beyond have similar institutional frameworks in place to support the internationalisation of their respective companies. For Kosovo, a country in desperate need of FDI, these export- and internationalisation-oriented SME support institutions offer a new, compelling entrance point for FDI promotion activities.

More importantly, the bilateral donor agencies active in Kosovo (USAID, GIZ, SIDA, Dutch Aid, Norwegian Aid, etc.) and international donor agencies (EC, EBRD, World Bank, etc.) should explore cooperation and joint activities with the national export/internationalisation service agencies, and introduce new programmes tailored to supporting companies interested in investing in manufacturing in Kosovo.

In the case of Sweden this model would mean that its development agency, SIDA, would contribute to its mission to strengthen the private sector in Kosovo, by delivering real and sustainable economic development results (for the Swedish tax-payers’ money), and at the same time support the expansion of Swedish industry. It sounds like a win-win-win situation!

Without any doubt, this new FDI boosting model will demand great coordination of efforts among Kosovo institutions and international donor agencies, and it will require substantial investments by all parties. On the other hand, a tremendous amount of money has already been spent in trying to construct a sustainable private sector in Kosovo, a private sector strong enough to generate the required employment and tax to uphold a modern Kosovo state and society, which in turn would allow the international donor agencies to gradually redraw its financial and technical support (exit strategy). Again, we are far from delivering on this development goal. Surely, there must be an appetite among the international donor agencies and their respective governments to try something new and innovative, spend the extra millions to jump-start the Kosovo private sector and economy as a whole in a new more sustainable direction.

Let’s go back to Sweden to illustrate how this new FDI boosting model could play out in practice. Sweden is an export-oriented country with a very large number of internationally competitive multinational corporations, such as Tetra Pak, Alfa Laval, Ericsson, SCA, IKEA, H&M, Atlas Copco, Vattenfall, AstraZeneca, Autoliv, AGA, BRIO, Electrolux, Hasselblad, LKAB, SAAB, Scania, Spotify, Trelleborg and Volvo, among many others. Below this line up there exist a large Mittlestand of SMEs that also do a majority of their business outside of Sweden. A very large proportion of these companies’ manufacturing is already located outside of Sweden. Among the retail giants, such as like IKEA (furniture) and H&M (clothing), few own any production units at all. Their business focus is on product design, purchasing logistics and sales, while manufacturing is outsourced to thousands of factories all over the world.

Consequently, for Sweden as a FDI promotion market, we have a very clear idea what companies to target. The same exercise could be completed on other key FDI promotion markets in Europe and beyond. This market research exercise could be designed into a technical assistance activity, aimed at supporting the Kosovo Investment Agency (IPAK) to strengthen its market surveillance capacities and update its databases.

Imagine that IPAK worked closely with SIDA, Swedfund and Swedpartnership to develop a special FDI Incentive Programme for Swedish companies investing in manufacturing units in Kosovo. The target could be minimum 5 Swedish companies setting up production in Kosovo (or a manufacturing company of a different nationality producing for the Swedish company within an established supply-chain) and employing minimum 250 persons per factory. Within this new programme, Swedfund and Swedpartnership will offer the Swedish companies their usual package of services – risk capital, expertise and financial support for investments as well as financial support for investment in knowledge exchange and equipment.

SIDA, on the other hand, would work with the Kosovo Government, its relevant agencies and municipalities to raise awareness of the new FDI Incentive Programme, and explain SIDA’s technical and financial contributions to the new scheme. The financial contribution of SIDA could be in the range of €500.000 to €1.000.000 per investment depending on the size of the investment, measured in number of sustainable jobs created. In a cost-sharing agreement with the Kosovo Government and the municipality in which the investment will be located, SIDA will subsidize and support the Kosovo institutions in rolling out the red carpet for Swedish investors.

More specifically, SIDA’s investment will support the Government of Kosovo in offering a compelling incentive package to Swedish investors, and it will financially assist the targeted municipality in making the required land, buildings and infrastructure investments (roads, electricity, water, sewage). As part of the cost-sharing agreement, the Kosovo institutions will be expected to match the SIDA investment at a one-to-one ratio.

As part of this new FDI scheme, SIDA will invest maximum €5.000.000 in creating minimum 1.250 new jobs in Kosovo. If we say that the average salary in these new factories is about €300, that means the 1.250 workers will generate a total of €375.000 in salaries per month or €4.500.000 per year. This represents a phenomenal financial injection into the local economy, every month, fresh money that simply was not there before. It looks like easy math!

Now imagine that the same FDI boosting scheme was in place involving development and export/internationalisation support agencies in Kosovo’s other partner countries, and that the US led the way with 10 investments in manufacturing in Kosovo, followed by Germany, UK and Turkey with 8 each, Holland, France, Austria, Italy, Belgium, Switzerland with 5, Denmark, Norway, Finland, Poland, Slovenia with 2. We could reach as many as 70 manufacturers, employing minimum 17.500 staff among them, generating a yearly salary income for the people of Kosovo of €63 million. Of course, such a coherent influx of FDI in manufacturing would engender multiple additional positive impacts on the Kosovo state, economy and society.

More FDI would mean an increase in tax revenue for the state, through VAT, and other taxes. Moving people from unemployment to employment would allow the state to spend less on social benefits, budget savings that could, for example, be re-allocated to assist vulnerable groups in society. Furthermore, other social costs will be reduced in society as a result of more people are employed rather than hanging around all day doing nothing.

In boosting FDI and the manufacturing sectors in Kosovo, we would effectively start the process of overcoming a large portion of the current external and internal constraints on private sector development in Kosovo, described in detail above.

Moreover, and this is perhaps the most important long-term positive impact of an increasing the number of international manufacturing companies in Kosovo, this pool of companies dependent on international trade rather than domestic business will dramatically influence and change the Public-Private Dialogue on private sector development and economic development in Kosovo. The equilibrium of the public policy debate will change to address long-term issues important for manufacturing and exporting companies, rather than being dominated by the drive for short-term gains and benefits in order to survive on the saturated Kosovo market.

Worth a try, I would think.

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About Jakob Modéer

22 years of corporate and international investor experience as well as private sector development project management, consultancy in private sector policy and business advisory services, and direct consultancy to companies in South East Europe (and now a blogger on socio-economic issues)
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