Destroy the middle-class, and you will destroy democracy

David Madland describes the middle-class in the following way: Being middle class in a middle-class society—where most people have adequate financial resources and stability, but not enough to allow for a life of leisure—fosters attitudes and behaviors that are essential to building a healthy capitalist system. Middle-class parents raise their children to value work and education because they understand their children will be dependent upon work, not capital, for most of their income. They convey to their children the principle that if you work hard within the system and follow the rules, you will get ahead. They pass down the patience necessary for children to pursue an education, career, or entrepreneurial activity, and they have the economic means to sustain that patience and plan for the long term.” (David Madland, Issue #20, Spring 2011, www.democracyjournal.org)

Well, the faith in the virtues of hard work and belief in the system appears to be eroding all around the World these days. The ultimate price of this erosion may not be the fall of capitalism but of democracy. The status of the middle-class is an indicator of society’s socio-cultural support for the principles of democracy. For years now, the middle class has been shrinking in the West. In fact, the financial rescue packages in the US, launched in the wake of the financial crisis of 2008, has been middle-class destructive, with the poor people paying the price in two specific ways, according to Mike Shedlock: (1) Excessively low interest rates on deposits, which makes saving unattractive, and (2) the Federal Reserve’s actions to drive up inflation at a time when real wages do not rise correspondingly. (http://globaleconomicanalysis.blogspot.com)

The American historian Francis Fukuyama explains how “Marxists didn’t get their communist utopia because mature capitalism generated middle-class societies, not working-class ones.“ However, Fukuyama now raises the uncomfortable question – what happens to the middle-class if the rapid development of technologies and globalization “makes it impossible for more than a minority of citizens in an advanced society to achieve middle-class status.” In the words of sociologist Barrington Moore, “No bourgeois, no democracy.”Fukuyama points to statistics showing that the “median incomes in the United States have been stagnating in real terms since the 1970s.” (Francis Fukuyama in Foreign Affairs, January/February 2012 issue)

Over the last 40 years, a very large number of manufacturing jobs in the West have been outsourced to countries with lower wages (costs), jobs that have not been universally replaced, pushing large groups of society into unemployment, benefit dependencies and relative poverty. Recent statistics from the US Bureau of Labor Statistics shows that the top 10 occupations in the US, measured in number of workers, are retail salespersons, cashiers, cooks and waiters, office clerks, nurses, customer service representatives, logistics personnel, secretaries, janitors and cleaners. Most of these service jobs are paid almost 50% of the US median income. To keep up with raising prices, many people with low paid jobs will have to hold two jobs to make ends meet. This is not the base of a new emerging middle-class. This is cementing the existence of a lower class, and one that is just barely keeping its head above water.

In the euro-zone countries (17 European countries using the euro currency) the situation is even worse. There is a constant loss of mid-pay jobs, mainly as a result of companies closing down, cutbacks in government spending (slimming the state bureaucracy) and globalization (outsourcing work). In total, 7.6 million mid-pay jobs have been lost since 2008, while 4.3 million low-pay jobs were created during approximately the same time period. Maarten Goos, an economist at the University of Leuven in Belgium, warns that Europe could double its middle-class job losses. The ‘emptying’ of the middle-class is far from over.

“Both America and Europe have shrinking middles. The real-terms incomes of many people on low and middle incomes have barely risen over the past 30 years. It is perhaps easier to see the downward spiral of the American middle classes as we gaze on the ‘ruin porn’ of Detroit. Simply put, their share of the income pie has dropped, while that of the top 7% grows.” (Suzanne Moore, The Guardian, 28 August 2013) While the middle-class is shrinking the inequalities in society are growing, even in traditionally egalitarian countries, such as Germany and Sweden. According an OECD report from 2011, “the highest 10% of earners have been leaving the middle earners behind more rapidly than the lowest earners have been drifting away from the middle”. Furthermore, “capital income, or income derived from wealth not work, has been a particularly notable source of rising inequality”. (http://www.huffingtonpost.com/2011/05/03/income-inequality-oecd-report-rising_n_857057.html)

The health, strength and size of the middle-class is closely linked to two of the pillars of a well-performing nations state – economic growth and good governance. If there is no middle-class to consume the supplied products and services, the entire economy will suffer. Until now, the accumulated purchasing power and habits of the very small elites in Western societies and the growing lower classes are not enough to compensate for the dwindling middle-class. David Madland highlights a number of additional societal benefits of a confident middle-class, such as it being “a prerequisite for robust entrepreneurship and innovation, a source of trust that makes business transactions more efficient, a bulwark against credit booms and busts, and a progenitor of virtuous, forward-looking behaviors, such as valuing education.” (David Madland, December 7, 2011 on www.americanprogress.org)

The middle-class expects transparency and professionalism from the public sector. As taxpayers, the middle class advocates ‘good governance’ by the state. Better governance is a pre-requisite to economic growth. It is no surprise that the Nordic countries, famous for relatively high taxes, yet well performing state structures, are also among the most competitive economies in the world. An increasingly unequal society, where a small political-business elite dominates the formation of public action, mainly to serve their own short-term interests, is destroying the middle-class. The elite shows little understanding of the linkages between an affluent middle-class and democracy. Or perhaps they do understand, but while they are not willing to sacrifice their selfish notion of capitalism, they are all too happy to let democracy go, as long as they find themselves on top of whatever political system that emerges.

Along these lines, David Madland highlights that while the British economist John Maynard Keynes is famous for his work on stimulating demand to pull an economy out of recession, he is less known for his vigorous support of the middle class. In fact, Keynes “recognized the importance of the middle class in creating sufficient demand to stimulate growth. He argued that extremely unequal distributions of income depress demand and thus reduce growth.” This goes some way of explaining why the world’s many financial rescue packages since 2008 have failed, the funds were absorbed by banks and stock markets, and never really filtered down to the people.

Madland continues, in defense of the middle-class, by stressing that a “strong middle class leads to higher levels of trust. When a society is largely middle class, strangers are more willing to try to work with one another in business and in life, and people are more likely to be optimistic and believe that they can control their circumstances. In addition, people feel they share a similar fate and form stronger social bonds.” In transition countries, the lack of trust and social capital in society is a major constraint on development. Even private companies are incapable of growing in size due mainly to lack of trust among owners, managers and staff.

Furthermore, according to Madland, a “strong middle class…fosters better governance by helping ensure government is well-run, increasing citizen participation, minimizing factional fighting, and promoting policies for the benefit of all of society rather than special interests. In contrast, economic inequality and a weak middle class make the political system imbalanced and depress the political participation of the non-wealthy, reducing voting, discussion, and interest in public policy.” In which category of governance does your country belong?

However, the values of trust, good governance and respect for hard work are currently under threat from what David Callahan calls the “Cheating Culture”. The middle-class environment, characterised by certain behaviors, achievements, and attitudes, which in turn promote economic growth, can be “undone by extreme levels of economic inequality.” The rise in “white-collar crime and ethical misconduct among employees…in the business world has been fueled by rising economic inequality, which has broken down social norms and made cheating more rewarding. (David Madland, Issue #20, Spring 2011, www.democracyjournal.org)

Was this the message of Martin Scorcese’s “The Wolf of Wall Street”, that ‘cheating’ is to be perceived as the modern, socially acceptable path to riches, and that riches is the new nirvana, full stop. But the ‘cheating culture’ goes beyond the financial world. What about the Greek and Italian voters, have they not been ‘cheated’ out of their democratic right to select their political leaders in recent years?

Francis Fukuyama presents a gloomy picture for the future of the middle-class in the West, when stating that “ the bursting of the housing bubble in 2008–9 was nothing more than a cruel reversion to the mean. Americans may today benefit from cheap cell phones, inexpensive clothing, and Facebook, but they increasingly cannot afford their own homes, or health insurance, or comfortable pensions when they retire. (Francis Fukuyama in Foreign Affairs, January/February 2012 issue)

So, with unemployment, poverty and social exclusion on the rise across Europe and the US, and with a political system seemingly incapable of responding to the crisis and the demands for change among the citizens, is there a future for democracy? Or are we on a slippery slope towards more authoritarian political systems, which may be better equipped for crisis management and making the necessary ‘tough decisions’, than the democratic system’s endless checks and balances, review processes and public dialogue, and where the key actors are worried about being re-elected?

Looking ahead, the challenge for ‘Old Europe’ and the US (the West) is to re-build the middle-class, as a means of saving the democratic principles upholding our societies that made us wealthy in the first place. The challenge among transitional countries is stop the ‘brain-drain’ and to create a middle-class, that is confident, financially independent and active enough to fight off the authoritarian political culture and oligarchical business models, which currently suffocate all efforts of collective and systemic development.

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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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The case for social learning and systems practice in development – Part 2

I think we can all agree that the general level of well-being among the Kosovo people is currently very low. It does not really matter what indicators we use the results are the same. We are simply not delivering on the hope and aspirations of the Kosovo people.

Young people are losing hope about the future while the old cannot rely on the state to supply adequate pensions and health care services. Wealth is mainly accumulated by a small political-business élite, while the large majority of the population struggle to make ends meet on minimal funds (including the Diaspora’s life-line of remittances).

Systems graph

Managing a modern nation-state in a way that generates real well-being for the large majority of its citizens is difficult, very difficult. There are no quick-fixes, there is only planning, dialogue and hard-work. Consequently, few countries on Earth can really do it! The issues at hand when running a state that puts citizens first are complex, and involves multiple stakeholders participating actively in a continuous process of transformation. Few political leaders can cope with so much democracy, dialogue and long-term thinking.

From a systems perspective, one strong system cannot compensate for the under-performance of other systems. For the supra-system to produce real well-being among the population, and that should be what we all care about, the social, cultural, political and free market systems must perform well in their own right, and the inter-relationship between and among them must be open, positive and constructive. In communism, the political system was dominant, and it even set out to change and subdue all the other societal systems, creating the ‘Soviet man’ to replace the family, the ‘Party-tail’ to replace religion while all economic activity was nationalised and managed by state bureaucrats. In post-2008 financial crisis, the West (winners of the Cold War) is clinging on to the free-market system,  as it is the only viable saviour of all evils in society, and allowing the political system to carve away at democratic and humanitarian principles in the name of the Holy Grail of Economic Growth!

To change the course of development in Kosovo, and improve the overall well-being of Kosovo citizens, as in many other places on Earth today, there is a need among us all, as system and sub-system actors and institutions to adopt a Critical Social Learning Systems (CSLS) approach to societal development.

The ‘systemic well-being’ of Kosovo people, the environment and future generations, is currently being ignored. Numerous donor projects are making ‘reality judgments’ to address problems in individual systems and sub-systems, but few make any ‘value judgment’, highlighting the ‘ethical and moral aspects’ of the actions. (Bawden in Blackmore 2010:97) We are winning the occasional development battle, but we are far from winning the ‘well-being’ war. As a result of too many ‘discipline-based experts missing the whole picture’, the overall well-being among Kosovo citizens remains very poor. And this despite 15 years of almost unlimited financial and technical assistance by some of the most developed countries on Earth.

One reason for this under-performance is the prevailing technocentric and corporatism worldviews held by the local political-business élite and the international donor agencies active in Kosovo. According to Richard Bawden, the worldviews we hold ‘filter our understandings, our frames of mind as the contexts of our judgments and our fundamental beliefs as the foundation of our morality’. With the return of democracy, more holistic, egalitarian and communitarian worldviews are emerging in Kosovo, which could lead to a more balanced discourse on what constitutes sustainable development and a ‘good society’ in Kosovo. (Bawden in Blackmore 2010:49-50)

However, this discourse, or ‘examination of similarities and differences in beliefs and values’ can only take place when participating societal actors and institutions adopt a higher degree of ‘criticality’. (Bawden in Blackmore 2010:94) In Kosovo, the political system is dominated by a self-serving political-business élite that is neither critical of the ‘conditions of the environments’ nor ‘critically reflexive about (their) own structure and functions’. (Bawden in Blackmore 2010:95)

Taking into consideration that most policies in Kosovo since 1999 were created and implemented with some level of ‘participation’ by international donor agencies and consultants, and that the final outcomes of these policies are visibly poor (we still suffer from high unemployment, slow economic growth, poor health-care, lack of water, plenty of air pollution, extensive poverty, social exclusion, etc.), it is questionable to what extent the international donor agencies themselves are any more critical in their evaluation of the situation in Kosovo, and of their own roles.

To some extent, this lack of criticality is a result of what Geoffrey Vickers brands the ‘failure of communication’. By not adequately opening up the societal dialogue to representatives of the social, cultural and free market systems, the actors and institutions of the political system in Kosovo are failing to identify and maintain ‘appropriate shared ways of distinguishing the situations in which we act, the relations we want to regulate, the standards we need to apply, and the repertory of actions which are available to us.’ (Geoffrey Vickers in Blackmore 2010:93) In other words, by only communicating among each other the existing status quo in society becomes the ‘declared’ reality, no matter how unreal and how un-sustainable this reality may seem to actors and institutions in the social, cultural and free market systems.

In Kosovo, Civil Society Organisations (CSOs) and the Media do not yet act as the third and fourth pillars of democratic society, demanding accountability and transparency from the political system, and ensuring that an open participatory societal dialogue take place on key development issues.

To move towards social learning would include the acceptance of ‘personal and shared experience as the basis for learning and development’ among system actors and institutions. (Bawden in Blackmore 2010:99) In other words, by working together we will learn together. It’s not enough to read about ‘good practices’ from other countries, we must attempt to implement these practices as well, and preferably do so using our own financial resources, which always does wonder to the sense of ownership.

We must also accept that ‘my world is different from yours and this must always be so.’ (Ison in Blackmore 2010:85) Among diverse views and beliefs, it is important to foster dialogue, rather than debate. ‘Dialogue is a process that does not seek consensus, but to provide an environment for learning, to think together.’ (Ison in Blackmore 2010:81) Unfortunately, within the political system in Kosovo, the predominant culture of communication is confrontation, and media platforms encourage debate, not dialogue. While debates are about destroying the opponents’ arguments, dialogue is about sharing experiences and working out new, positive solutions together. When was the last time you saw a TV show based on this premise?

To maintain social learning will also require that the political system welcome a high degree of citizen participation in the democratic processes. Unfortunately, ‘power structures in current forms of liberal democracy have biased decision making against sustainability…our current political system tend to appease powerful economic interests at the expense of the overall well-being of the majority and the environment.’ (Jim Woodhill in Blackmore 2010:60) The international response to the crisis in Greece has been just the opposite to social learning, including systematic changes focusing entirely on saving the financial sub-system while ignoring the costs to the social, cultural, free market and political systems.

Within the context of Kosovo and with the ambition of bringing about improvements in the critical social learning system’s effectiveness, there is a need to strengthen the relative influence of the social, cultural and free market systems on the societal supra-system. This would open up space for more frequent, open and constructive societal dialogue.

Of equal importance would be to strengthen the private sector sub-system by making it more viable, competitive and export-oriented, as well as more independent of the political system. This new private sector sub-system would create employment, economic growth and contribute tax revenue to the state, which in turn would strengthen the free market system and the societal supra-system.

In support of the social system, the intervention should have one objective and that is to eradicate poverty, starting with reducing poverty among vulnerable groups in society. In support of the cultural system, the intervention should focus on promoting world views in society that are holocentric, values and beliefs that are in line with egalitarianism and communitarianism to counter balance the prevailing technocentric worldviews, which offers only short-term and systematic solutions, but produces no real development.

Within the political system, democratic principles should be promoted, focusing on ways to increase transparency in public affairs as a means of reducing corruption. Corruption kills people’s faith in the democratic political system. New platforms for communication are needed to encourage dialogue, not debate, on societal development issues. Good governance should be promoted in government and public administration, and there is a need to punish official abuse of public authority and resources.

Finally, to promote social learning as a development tool more research on its practical impact on society is required. There is a need for practical success stories in social learning, which could be replicated by countries in need of systemic change. Kurt Lewin’s ‘action research’ concept offers this opportunity. However, to achieve this stage a country’s leadership must show great courage and commitment to change, because “you cannot understand a system until you try to change it” (Ramage and Shipp 2009:262). Who will take the risk to lead the charge for change in Kosovo?

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The case for social learning and systems practice in development – Part 1

My ‘situation of concern’ involves the struggle within transitional states, such as Kosovo, to establish a societal supra-system (see illustration below) that generates well-being among citizens. I am also concerned with the ‘tension of difference’ and conflicts within and between social, cultural, political and free market systems. Between the levels of a stable hierarchy there is emergence in systems dynamics as a result of the interaction and influence among systems and sub-systems, which often hinder the emergence of a well-functioning free market system. (Richard Bawden in Blackmore 2010:41) In turn, the private sector sub-system in Kosovo is under-performing, and as a consequence it does not generate the necessary employment, economic growth and taxation to uphold a well-functioning free market system.

Systems graph

As a development manager, my ‘situation of concern’ also includes a professional frustration with donors and local institutions’ fixation with systematic thinking, short-term results and first-order change, which in turn shape development policy-making and implementation, and dictates what is recognised as ‘effective performance’. For example, Kosovo has improved its World Bank’s Doing Business ranking for three consecutive years. A deliberate choice was made to ‘pursue the systematic route’ of development, meaning more of the same, more efficiently. The result is first-order change, and ’effective performance’ in systematic terms. However, despite this improved ranking, the wellbeing of Kosovo citizens has not improved. To achieve that, a systemic route should be taken opening up the possibility of second-order change, ‘a change that changes the whole situation’, the entire system. (Ison 2010:191) This would mean going beyond economics and measuring hope, health and happiness.

Currently, there is no drive to ‘abandon certainty’ and to value the benefits of social learning and there is little recognition among donor agencies, in line with second-order cybernetics, that they are part of the situation, and not acting in an external ‘objective position’. (Ison 2010:256-257) Our inability to assume uncertainty and complexity hinders us from producing sustainable development solutions. Without a systemic approach, policies often conflict causing unintentional consequences in practice. In Kosovo, a policy push for free trade agreements may look like progress on paper, but when it involves strong manufacturing countries, such as Turkey, it will make the development of domestic industries in Kosovo increasingly difficult. The final impact on employment and trade balance are bound to be negative.

In Kosovo there is limited democratic dialogue in which actors and institutions ‘within society engage with each other to understand, contest and influence the direction of social change.’ (Woodhill in Blackmore 2010:62-63) Development practitioners should facilitate this dialogue to stimulate a ‘gradual transformation of the system as a whole’ and as learners multiply and new ideas come into ‘good currency’ it becomes a learning system. (Donald Schön in Blackmore 2010:215)  The ideas in ‘good currency’ could be solidarity among people, export-led economic growth, social inclusion, etc.

However, in present Kosovo social change can best be described as being ‘dictated by tradition, existing institutional structures, brute economic and political power, vested interests, technocratic and instrumental thinking, political expediency or ambivalent resignation to the status quo’ (Woodhill in Blackmore 2010:63) Conservative systems protect themselves against ideas that may have disruptive consequences, yet ‘(w)hen the ideas are taken up by people already powerful in society this gives them a kind of legitimacy and completes their power to change public policy’. (Donald Schön in Blackmore 2010:11) Herein lay the development challenge. The day when the local political-business élite in Kosovo move from imports, retail and infrastructure construction to manufacturing, exports and investments in human resources, is the day when unemployment, trade deficit and poverty will start to fall. It’s about appreciating and acting on a sincere sense of statehood and civility.

Robert Chambers puts the finger on the core issue for the political-business élite in Kosovo, when he proclaims that the biggest challenge of the 21st Century is to “find better ways to enable those who are powerful to gain more satisfaction from exercising less power”. In other words, instead of succumbing to greed and corruption, short-term thinking and self-interests, which only leads to the collapse of the supra-system, the political-business leadership must embrace social learning and begin to value and appreciate other things in life than the application of power and accumulation of personal wealth, such as seeing less poor children in the streets of Pristina, cleaner air, less emigration, functioning health services, 24/7 water supply, etc. At this point in time, Kosovo urgently needs individuals equipped with a new sense of individualist motivation, “a drive for achievement, which will not only aim at personal gain but also convert this gain into productive investment, which may eventually benefit society generally.” (Thomas, 2000:37)

However, this approach will require us to be ‘self-confrontational’, which is always a challenge, and consequently we need to approach our situation in society differently from how we do it today. Kosovo, as a society and population, has the power to change ‘but only a fix on goodness could give our means their aim, support and meaning’. (Wilshire in Blackmore 2010:43) Development is more than technical solutions to single-cause problems, development also have ethical and aesthetic dimensions. There is a need for moral judgments to be made. Unfortunately, in societies where the development paradigm is dominated by donor agencies and local political-business élite the moral judgement is often eliminated from ‘our concepts of rationality’. (Ulrich in Blackmore 2010:43)

Jim Woodhill defines social learning as the ‘(p)rocesses by which society democratically adapts its core institutions to cope with social and ecological change in ways that will optimise the collective well-being of current and future generations’. Social learning ‘looks at how society understands both itself and its relation to the external environment, and then adapts its assumptions, belief systems, approaches to problem solving, and systems of social organisation, either to achieve particular ambitions or cope with external and internal threats’. A society incapable of applying social learning risks destruction, either by imploding as the social fabric breaks down or as a result of not coping with an external threat. (Woodhill in Blackmore 2010:63)

Donor agencies and local political-business élite, as core institutions in Kosovo, must pro-actively enhance social learning in order to replace the current “well-being for the few ” with “collective well-being” as the outcome of the societal supra-system. They can initiate this learning process by facilitating and supporting the emergence in Kosovo of positive social change, based on ‘open dialogue, democratic constraint of inequality, investment in education and social capital, the establishment of mediating forums, open policy processes, questioning of basic assumptions, and greater democratisation of politics and the techno-economic sphere’. (Blackmore 2010:63)

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We are ‘stuck in a rut’

By definition, ‘Stuck in a rut’ means “not being able to change a prevailing condition happening to you at particular time and as you try doing this you end up in the similar position/condition.” (www.ask.com)

Doesn’t this describe well the world’s response to the Global Financial Crisis of 2008 and the situation in most of the World in 2014? Our common answer to the crisis of 2008 has been to produce ‘more of the same thing’. More money! The Federal Reserve, Bank of England, Bank of China, Bank of Japan and European Central Bank have printed and keep on printing money, and are injecting this ‘artificial’ cash into their respective financial systems.

The Keynesian logic is that more cash would stimulate demand and jump-start the economy out of the recession. Well, isn’t that just like trying to cure drug addiction by giving more drugs to the drug-addicts. The main reason we got ourselves into trouble in the first place in 2008 was because the financial system (banks, other financial institutions) was making credit ‘too easy and too cheap’ for us to resist, handing out loans left and right without hardly any guarantees, causing too much debt driven consumption in houses, second houses, reconstruction, cars, cloths, travel, “you name it-we bought it“, etc.).

The consequences of the financial crisis have been felt around Europe. Some countries have coped better than others, mainly as a result of their overall competitiveness, better governance, social policies, tax base and social capital. In some Southern European countries, however, unemployment and poverty have reached historical highs.

According to recent European Commission estimates, the natural rate of unemployment in Spain increased from 10.9% in 2006 to 23.2% in 2013, and is estimated to increase in structural figures to 26.6% by 2015. (www.thecorner.eu) Youth unemployment in Spain reached a whopping 56.1% in 2013, according to Eurostat data. Only in Greece is there more unemployed youth, 62.9% in the summer of 2013. The talk of a “lost generation” is real, as tens of thousands of young Greek, Portuguese and Spaniards give up looking for a job or emigrate to better performing economies in Northern Europe, or emerging markets in Africa and Latin America.

A recent study shows that having completed tertiary education no longer lowers the risk of unemployment compared to having the lowest level of education. Unemployment and other forms of exclusion from the labour market and society lead to significant economic and social costs for the individual citizen and society as a whole. (www.eurofound.europa.eu) A dramatic fall in employment in the wake of the 2008 crisis is not a European illness. In the US, the state of Illinois has “380,000 fewer people employed now than before the recession” in 2008. According to the Bureau of Labor Statistics, unemployment is still up by nearly 200,000 people, and at least 185,000 people have given up and left the labor force.” (globaleconomicanalysis.blogspot.com) A shrinking base of working, tax-paying citizens cannot fund the same level of government public services and pension schemes. This simply does not add up, either public services must be cut or taxes increased.

But while we easily get bugged down in abstract and faceless economic statistics and austerity programs, the human and social costs of the financial crisis in Europe is a reality for everyone to see. Unless, we choose to deny what goes around us, of course. In 2012, the Hellenic Statistical Authority reported that 23.1% of Greeks were at risk of falling into poverty. The same figure in 2009 was 19.7%. This corresponds to almost one million households! And they are estimated to earn less than €12.000 per year, to house and feed two adults and two children under 14 years. And that is with 2014 food and utility prices! This statistic is even on the low side because it does not include traditionally marginalized groups in society, such the Roma minority, illegal immigrants, homeless people and institutionalized persons.

As a result of pre-crisis years of economic mismanagement, corruption, excessive borrowing and chronic tax evasion, followed by years of fierce austerity, the real social and economic hardship in Greece today come in many shapes and forms. Thousands of households live without electricity and water (closed due to unpaid bills) parents abandon their children due to lack of food (economic orphans), malnutrition is on the rise among school children, senior citizens beg in the streets to top-up their shrinking public pension, and so on. And this is in a country that has been member of the EU since 1981. It’s inexcusable how the leadership (political, economic, social, religious) of a country could succumb to such blatant greed, selfishness and short-term thinking, and to the belief that these values were the pillars of a new viable economy. It’s simply unbelievable.  (http://www.youtube.com/watch?v=wgVfxR-YhbI)

Still, true Keynesian theory states that, to get out of a recession, government’s should increase expenditures and lower taxes, and as a consequence stimulate demand. The opposite is taking place in Greece at the moment. Government is cutting expenditures, and hiking taxes. Why? Enter the national debt! Greece has lived beyond its means for many years, financing its public spending and private consumption through credit, and now the chickens are coming home to roost with unemployment and social despair soaring.

In a pre-euro area, Greece could have devalued its currency in an attempt to re-gain international competitiveness, and export its way out of the crisis. Inside the euro-zone, this is no longer an option. The only way to reduce its debt is to cut costs and generate more revenue through taxes. Both ways mean more pain for the Greek people, as they see their pensions and social benefits cut, salaries reduced and jobs lost. In such a situation of dramatically falling domestic purchasing power, where is the ‘stimulated demand’ that Keynes talked about, and where do we expect the seeds of economic growth and employment to emerge?

Where to start? Well, one way would be to take a step back and contemplate if the actions taken and policies pushed since 2008 has done the world economy any good? The answer will depend on whom you ask of course. The economists will insist the bailouts and austerity programs are good things because without them things would have been even worse. The politicians will agree in order to hold on to power and avoid general elections (poorly performing Italy has a third non-elected government in a row now). The general population in the EU will disagree, as they have experienced a real fall in living standards and a growing disillusion with the political-economic system (or rather with the way national and EU politicians and bureaucrats mismanaged the good years before the crisis and showed complete lack of leadership in addressing the causes of the crisis afterwards). Again, the situation is not much different in the US characterized by political deadlock, sluggish economic growth, high unemployment and increasing poverty levels.

Now, the same group of international and national bankers, big business and politicians that got us into trouble in 2008, are at it again. Their solution is, again, for the state, companies and citizens to spend more, no matter that the money we are suppose to spend is not generated through work, but printed and borrowed like Monopoly money. But the citizens of the world are not taking the bait. They are careful, they are saving, because they remember what happened last time around. While the politicians, big business and bankers did not really ‘feel’ the crisis, as they were bailed out (remember the US car industry, TARP, etc.), the average Joe was not so lucky. He got stuck with his mortgages, and as he lost his job, he began the decline towards poverty.

According to the United States Bureau of the Census one of seven people in the USA lived in poverty in 2012. That’s 46.5 million people (or the entire population of Spain!) and the highest number of poor people since the Census started in 1960. Almost one out of sixteen people in the USA are living in deep poverty. This refers to people living on an income 50% below the poverty line. In 2012, 6.6% of the US population (approx. 20.4 million people) lived in deep poverty.

Now, if you were a member of a family, in the US or Greece, struggling to make ends meet, and there was a phone call from the bank offering you cheap credit. Would you take it? Probably not. The politicians, bankers and big business do not seem to have learned anything, but the households have. So, if the households will not jump back on the cheap credit band wagon, the hope of spending our way out of the crisis turn to the corporate world.

With the banks re-financed by the Central Banks of the world, and the interests at record low levels, the companies should be borrowing, investing and growing, right? Well, that does not seem to be happening either. Demand is simply not there in the market, which may be a natural consequence of households being more careful in how they spend their money or simply too poor to spend at all. So what do the banks do with all the ‘fresh’ money if the private sector is not requesting it? The rapid growth of the stock markets may give one clue to where the TARP and other government sponsored financial injections ended up. That’s not the economic growth we had all hoped for, measured in increasing sales and employment, that’s just another debt bubble ready to burst!

Back in Europe, where a recent report shows that the two sectors that contributed to the most dramatic reduction in employment during the crisis were manufacturing and construction. (“The social impact of the crisis”, www.eurofound.europa.eu) In the EU, manufacturing and construction lost more than 6.4 million jobs. Employment losses in manufacturing were evenly spread across countries, while construction sector fell the hardest and fastest in countries experiencing real estate booms, such as Spain and Ireland.

Perhaps manufacturing holds the key to turning the fortunes of Europe. One of the reasons unemployment is relatively low in Germany is that, unlike the US, Germany has hold onto and further developed its industrial base, rather than outsourcing it to China and other low-cost territories. A solution to reducing unemployment in Europe could be to re-invest in the continent’s established industries, support the emergence of new industries and perhaps even encouraging a return of manufacturing jobs from elsewhere in the World.

For production to return to Europe, industry must upgrade innovation, increase productivity and probably lower the cost of labour! “Decrease salaries, are you mad?” “What good will that bring, workers will leave and there will be deflation?” But wait, since when is deflation, meaning lower prices, a universally bad thing? And to whom? As a customer, we all like lower prices, it may even make us start spending again. Isn’t that what Keynes wanted?! However,  for the bankers, investors and the other Wolves of Wall Street, deflation means a risk of falling asset values, meaning falling profits and less bonuses for them! Hence the current full-out war on deflation!

In the real world, we should have gotten this deflationary slap in the face in the wake of the global financial crisis of 2008. Had we let the market take its course to correct the results of years of poor policy and business decisions resulting in too much debt, the overall economy would have shrunk, but it would have shrunk back to some kind of ‘normality’. Banks with too risky business models would have failed, and so would many poorly managed companies. This is a natural process of the free market. The same free market, based on principles we defended against egalitarianism and communism for almost 50 years.

But the few and the powerful would not let the economy shrink, because they would loose billions in their inflated assets, so they turned to their elite friends in governments and international financial institutions to help them, in their own words, save the world economy from apocalyptic disaster and revolution. What happened next was the return of communism, but in capitalist cloths. Political elites throughout the Western world unleashed waves of financial stimulus packages and rescue packages to save ‘strategic industries’. Oddly enough, Sweden, a country ridiculed in the US for its left-leaning policies, decided not to bail out SAAB (a car brand), while the US government gladly spent American taxpayers money to bail out everybody in Detroit. Or as one Swedish minister so elegantly put it: “If GM cannot make money out of SAAB, what do you expect from us the Government, we are not in the car making business”. To continue with SAAB, a long story short, GM sold its shares in SAAB to a Chinese consortium, and in 2014 production is back at the SAAB plant in Sweden. And that without the injection of Swedish tax payers money! Lesson learned: if there is value in the asset (SAAB as a brand and automobile) somebody in the private sector will buy it. If there is no perceived value, and hence no buyer, well then we should let it go and deal with the consequences.

By not biting the bullet in 2008, and dealing with the consequences we simply kicked the can down the road hoping that nobody would see and talk about it anymore. But it’s not so easy as putting our heads in the sand and hoping that the debts, unemployment and social misery will just go away by themselves. Deep down we all know that sooner or later we must deal with them. Unfortunately, it appears that we are stuck with a political-business elite, and bureaucracy, that are set on protecting their accumulated wealth and power above everything and everyone else.

Again, change of values and the way we function as a society is not on the table. It’s not in the public debate. Again, it’s just more of the same medicine. If they were true leaders, our current Political-Business-Bureaucracy elite would lead by example. They could start by lowering their own salaries and benefits. They could start by trying to explain what ‘really’ went wrong in the pre-2008 era, and do it in terms that we all can understand. The business elites could act by paying more taxes, as argued by Warren Buffet (http://money.cnn.com/2013/03/04/news/economy/buffett-secretary-taxes) or go the Bill Gates’ way and donate large chunks of their fortunes for good causes around the World.

The few, rich and well positioned at the top of society has to do a better job in sharing the pain. Clearly, there is room for maneuver and income cuts in times of crisis, if for no other reason than showing solidarity with those who have lost it all in and after the financial crisis. Call me naïve, but it just sounds like the right thing to do! But then you would have to act like your job dependent on somebody’s democratic vote.

Let’s assume that a large, multinational corporation agrees with the unions to reduce salaries of managers and staff alike, by say 15%. The lower salary will be agreed upon, on the pre-condition that (1) the final sales price of the product/services will be lowered, making the company’s products significantly more competitive on the world market, and (2) if/when sales volumes increase, and there is a demand for additional production, more staff will be employed in the existing plant or a new factory will be built in the EU! Earnings will increase as a result of higher participation in labour market. Furthermore, the public financial costs, transfer payments through welfare state, will decrease. Good things all around!

On the negative side, the managers and workers will now have to put in the same labour for less pay. Theirs, the politicians and bureaucrats’ purchasing power will decrease a little. But what if their short-term material sacrifice created a greater common good and a healthier local community? Is this a completely revolutionary thought and the ultimate destruction of the capitalist system as we know it? Probably not. It’s more likely the natural correction of the free market that was not allowed to take place in 2008. We would all have seen our salaries and wealth reduced, but within a real economy. Instead, as it played out with the state entering the market with tons of printed money, the very few saw their asset value grow, while the large majority (99%) saw their steady salaries and pensions eaten up by inflation or their jobs lost, and all this within a bubble economy.

If we feel threatened by less income, it must be because we have become very limited in our way of thinking, shaped in our appreciations of life by the forces of consumerism. What happened with the virtue of saving for a rainy day? What if by lowering our own salary, we could open up financial space for a young person to enter the labour market! The same way we expect higher salaries in good times, should we not sacrifice ourselves for the common good in the bad times, and accept lower wages? When did we become so unrealistic about the unavoidable ups and downs in life? Was it when we gave up farming (when our fortune dependent on external factors such as weather and climate) or when we left the closer knit community life of the village? Or was it when we no longer could make out the difference between money earned through labour, and money received on credit?

And what sacrifices are we really talking about, as a person living in Western Europe or North America in 2014, and not falling in the poor category (as mentioned above), should our monthly income fall by 15%? We would perhaps be ‘forced’ to live in a smaller house, drive a smaller car, cook at home more often, be more efficient in our use of electricity and water, travel less often to distant lands, don’t get a new smart phone every year and we might even time our purchases around retail sales offers. We would not starve, we would stay healthy, we would just simply buy less stuff!

Perhaps then, we will engage the thought of finding value in other ‘things’ in life, such as helping other people (volunteerism), sharing rather than taking, spending more ‘quantity’ time with family (no child invented the concept of ‘quality’ time with parents), reading books from the public library, walking the dog in the forest or drinking tea and having a laugh with friends. Remember that ‘time’ is the only asset we cannot get more of, so why waste it only on work?!

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“Should I stay or should I go now?”

(Looking beyond Kosovo’s birthday celebration and fireworks)

On February 17, Europe’s youngest state celebrated its 6th birthday. It’s been a celebration with mixed feelings. “Back then it was very emotional, there was euphoria in the air. We celebrated in the streets, now it’s mostly frustration you feel”, explains Lendita Abdiu, an architect educated in Sweden and now working at the Ministry of Environment and Spatial Planning in Pristina.

2.000 kilometers to the North, in the heartland of Sweden, Zeqavete Xheladini, one of thousands of well educated Kosovars working abroad, reminisces the day and the moment, when prime minister Hashim Thaci proclaimed that Kosovo will never be ruled by Serbia again, and from now on Kosovo is a proud, sovereign and free country. The parliament in Pristina had just voted for independence and signed the declaration. “When I remember that moment of total relief and happiness I still get shivers all over. It was the first time I saw the new flag on TV. It felt good and right, like seeing a newborn baby. It is a modern flag, without nationalist symbols. It has Europe’s color and symbols”, describes Zeqavete.

Since the ousting of Serb aggression by NATO in 1999, international donor agencies have strongly supported Kosovo’s post-conflict reconstruction and development. Today, Kosovo is the largest per capita recipient of EU financial support in the world. While the donor agencies and Kosovo institutions have shown themselves capable of holding the peace, much like in Bosnia, they have been less successful in building a viable vision for Kosovo’s future. The economy is in dire straits, corruption is rampant, energy and water supplies are insufficient, air pollution is evident around the capital Pristina and Kosovo’s young population (65% is under 30 years old) is growing increasingly restless.

In early February, student demonstrations at Pristina University turned violent. University professors stood accused of falsifying their credentials. In response to the student uproar against fraud rector Mr Ibrahim Gashi resign. In another corruption related scandal, EULEX (EU’s rule of law mission in Kosovo) and local police arrested, among others, the son of Kosovo’s late President, Ibrahim Rugova, for allegedly organizing the sale of Schengen visas.

Kosovo is the only country in Western Balkans that does not enjoy a visa free travel agreement with the EU. 36.000 newly graduated, young Kosovars start looking for a job every year. With an inadequate number of jobs available domestically, the desire to leave Kosovo grow stronger. A constant ‘brain-drain’ of young talent constraints Kosovo’s capacity to develop a sustainable economy, society and state. “I often wonder if I made the right choice to return to Kosovo”, reflects Lendita, “or I would have been better off staying in Sweden, as some of my international student friends did. They found good jobs in Sweden and Norway”.

The social rift between the have and have not’s in Kosovo society is starting to show. Unemployment is 35% on average, but over 55% among the youth. 37% of the population lives in poverty (below €1.42/day). The situation among disadvantaged groups is even worse, with 17% of the population living in extreme poverty (below €0.93/day). At the same time, a political-business elite has emerged whose wealth accumulation is mainly linked to government spending, construction and trade.

On the international arena, Kosovo has been successful in normalizing its bilateral relationship with Serbia. An historical EU brokered agreement was signed in April 2013. This agreement paves the way for closer EU integration for both countries. Obtaining recognition from other states and international organisations is a top priority of the Kosovo government. In 2009, Kosovo became a member of the World Bank Group and in 2012 it achieved full membership of the European Bank for Reconstruction and Development (EBRD), opening up for new funding opportunities for the economic development of Kosovo.

On the political front, more than 100 countries have recognized Kosovo’s independence, but full membership the United Nations and even FIFA is being blocked by Serbia and its supporters, mainly Russia. The EU, although the largest financial supporter of Kosovo, remain internally divided.  Five Member States, including Spain, have not recognized Europe’s newest state, mainly due to their own minority issues.

Beside traditional forms of diplomacy, Kosovo has turned to ‘digital diplomacy’ in its pursuit of international legitimacy, and in December 2013 it reaped its most significant success so far when Facebook allowed users to register themselves as Kosovo citizens (rather than as citizens of Serbia or Albania). Yet, it is perhaps the pre-occupation with achieving external recognition that has limited Kosovo’s success in improving people’s lives at home.

To stop the ‘brain-drain’, and even attract the large number of talented Kosovars living and working abroad to return to Kosovo, like Lendita, government and society need to refocus on improving the health of the Kosovo economy, society and its people. However, a return to Kosovo is more than an emotional decision. For a large number of Kosovo Diaspora the day-to-day financial and practical realities of life, working and bringing up a family in their new home countries is making a permanent return to Kosovo an increasingly unlikely step.

The Diaspora is caught in a Catch-22 situation. In order to return, the Diaspora first wants the situation in Kosovo to normalize, but to normalize the situation the skills, expertise and entrepreneurial drive of the Diaspora is desperately needed – in Kosovo! It’s the young, well-educated and professionally experienced Kosovars living abroad who represent Kosovo’s best bet in building a viable middle-class. Kosovo, like many other transitional countries, need a strong and vibrant middle-class to uphold and defend the beliefs and values of democracy, such as liberty, transparency, equality, responsibility, common good and justice.

“More students from Kosovo should have the opportunity to work abroad as seasonal employees,” says Lendita, “they would then better understand how things work in more developed societies, and why. With that new experience and knowledge, they can then help  build a better Kosovo.”

While there is an obvious, strong, emotional tie to Kosovo and its culture, traditions, food and habits among the Diaspora, it is not enough for most of them to return to Kosovo. Not yet. “I am looking long-term, at the job security and free higher education that Sweden offers my child”, explains Zeqavete, “but at the same time, I miss Kosovo, my family and friends. Our plan is to work hard here, save and go back to Kosovo as soon as possible. But I cannot guarantee that my son will feel the same, as he is born here in Sweden.”

For Kosovo, and its young institutions and society, foreign aid and the Diaspora remain two sources of financial, human, technical and social capital that can contribute, if utilized effectively and responsibly, to long-term, positive solutions and improvements in the well-being of all citizens in Kosovo, and to create real ‘hope for the future’ among Kosovo’s largest asset – its youth! If we cannot deliver ‘hope’, then the young Kosovars will simply vote with their feet!

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Golf tourism – a bold new approach to boost tourism in Albania, Kosovo and Macedonia

Tourism directly represents 5% of global GDP. Tourism, as an economic sector, is responsible for more than 235 million jobs worldwide. That is 1 out of every 12 in the World. It’s a phenomenally high number. In Europe, tourism is by far the largest employer, even more substantial than the car industry.

Tourism can be regarded as an export service. Tourism brings in fresh cash as a result of international tourists purchasing products and services. In total, tourism is the 4th largest export sector in the world, valued at $1 trillion, after fuel, chemicals and automobiles. In some developing countries, tourism now represents more than 25% of GDP.

Tourism is also an important economic activity in the European Union. In 2011, Europeans made over 1 billion holiday-trips. The top 5 destinations are Spain, Italy, France, UK and Austria! Tourism contributes to employment and economic growth at grand scale in both new and old EU Member States:

Country Tourism (%) of GDP Tourism (%) of Employment
Spain

6.4

5.1

Germany

3.2

4.7

UK

3.8

14.2

Croatia

14.7

N/A

Bulgaria

7.4

N/A

It’s remarkable how significant the tourism industry is as an employer in an industrial economy such as Germany, and how important tourism is to the service economy of the UK. Croatia’s dependency on tourism, as a key engine of its economy, is well documented. Closer to home, tourism contributed to 4.8% of employment and 5.3% of GDP in Macedonia. In Albania the figures were 6% of employment and 11% of GDP (certainly a large contribution here by Kosovo tourists!)

Tourism in Kosovo is in its infancy, according to Wikipedia, which also refers to a NY Times article in which Kosovo was named as one of “The 41 places to visit in 2011” (NY Times, January 7, 2011). Relevant data on the size and performance of the tourism (hospitality services) sector in Kosovo is limited. However, the Statistical Agency of the Republic of Kosovo reported that non-residents spent 11,000 and 22,000 hotel nights per quarter in 2011.  Tourism and hospitality business in Kosovo is currently driven by the leisure habits of the local population and the large Expat community. Activities aimed at attracting international tourists to Kosovo are most often donor project driven and hence ad hoc.

In general, one can conclude that the three countries – Kosovo, Macedonia and Albania have great potential for developing tourism into one of the anchor sectors of their local economies, producing both jobs and growth, yet at this point they are all under-performing as tourist destinations. The reasons for this are mixed and sometime country-specific. There appear to be some confusion about what growth strategy to follow. Should the objective be to develop a large variety of tourism sub-sectors within one country or focus on one or two core sub-sectors? Is the focus going to be on mass-tourism or high value clientele?

USAID is pursuing a regional approach in supporting tourism development in Western Balkan. (www.balkansgeotourism.travel) From the viewpoint of international tour operators and tourists this approach makes perfect sense. Very few tourists would only travel to Macedonia, Kosovo or Albania and spend a week there, but the same tourists would consider travelling to and experience the three countries together for a week. To create regional tourist packages, sourcing the best of what the three countries can offer in sights, food, shopping, culture and nature, is certainly the way forward.

In a recent stakeholders survey, commissioned by the USAID funded Regional Economic Growth (REG) project, the following top constraints in the tourism sector were identified:

  • Main constrain is the brand of the region as attractive destination for tourists;
  • Border clearance time for tourists;
  • Need for introduction of categorization of accommodation capacities and quality marking standards (including eco marks) synchronized within the region;
  • Availability of competent workforce and need for upgrading labor competencies;
  • Partly aversion for use of available technology in the sector, especially in auxiliary tourism services.

Any effort by donors and local businesses to improve the quality of tourism infrastructure, sights, accommodation and activities are consequently a good thing, and will contribute to reducing the identified constraints. However, with an increase in investments in the tourism sector, the expectations of an increase in the number of international tourists will grow.

Consequently, to further develop their respective tourism sectors, the next key challenges for Macedonia, Kosovo or Albania will be:

  • how to increase the number of tourists in the off-season and;
  • how to make the tourists stay longer?

It’s time to take a closer look at the international tourism market, to go beyond the traditional and what has been done until now, and stop doing more of the same, and instead identify current and future trends in the international tourism market to explore and develop.

It’s time to think bigger, re-focus and invest our efforts to accommodate and benefit from these emerging segments of the international tourism market. Here is one of them!

Golf Tourism

I can see the reader roll his/her eyes at hearing this. ‘Golf, are you joking, in the Balkans?!’ But wait, why not…hear me out, please!

If Turkey (http://golfturkey.com) and Bulgaria (on the Black Sea Coast (www.thraciancliffs.com) and at the Bansko ski resort (www.piringolf.bg)), and even Montenegro, on a mountain top, (www.rmgcc.me) have done it and are doing it successfully, why not in: (1) Three Lakes region of Albania and Macedonia; (2) along the Albanian coast, and (3) in close proximity to Pristina in Kosovo.

map 2 copy 2

All the right elements are already in place in these three locations – climate, water, weather, soil, people, culture, hotels, restaurants, shopping and airports. Most important, with a large young population eager to be activated, a large expat community living in the region (even more eager to be activated!) and its closeness to key international markets, the demand for golf tourism is there. And by working together, as a regional initiative, much can be achieved through joint preparations, design, construction, management and international marketing.

The stereotype of golf as a sport for old men wearing colourful checkered trousers, being carried around the golf course by electric cars, is just that – ‘old’. And this out-of-date prejudice about the game of golf, and who plays it, is causing us to miss another significant business and economic development opportunity. Let’s roll out some facts to put golf tourism in perspective and hopefully convince you to give golf tourism a chance.

Golf is the largest sports tourism segment in the world, with over 60 million active golfers! In Europe, there are 8 million active golfers. In egalitarian Sweden there are now 500.000 active players, out of a population of 9 million! Golf is becoming a natural part of people’s life, especially at an older age. Rising life expectancy is on the side of golf, as one of the few sports you can play well into pension years. Let’s be honest, at what age do we stop playing football, running after tennis balls or flying down ski slopes?!

The top golf tourism destinations in Europe are the British Isles, Spain, Portugal, Italy and France. Together they hold approximately 51% of the market. Turkey is a fast moving, emerging golf market, where golf courses in the Belek region has been developed in the last 20 years as a deliberate strategy to expand the tourist season beyond the summer months. In 2010 alone, golf tourism in Turkey generated an income of €500 million! (For more on Belek golf tourism and associated real estate developments, see: http://www.youtube.com/watch?v=WW5q6VI_wjc)

Now, let’s look closer at the average golfer, as a tourist. Traditionally the golfer is a man (76% of the golf players), aged between 40 and 64. However, in Northern Europe, the number of women golfers is growing very rapidly. Senior citizens travel extensively and stay for weeks playing golf together. On average, the golfer plays minimum 8 times per year in the home market, even more often when travelling abroad. Golf is regarded as a relatively expensive sport, which in tourism market terms mean we are attracting the more affluent, high-value adding tourists.

Golfers travel more frequently, stay longer and spend 3-4 times more money than non-golfers! Normally, the golf tourist will spend 6 hours per day on the golf course (playing, training, eating, etc). This means there is a demand for other activities for another 10 hours per day. Suddenly, other economic and touristic activities such as wine-tasting (Radovec in Kosovo, Berat in Albania and Kavadarci in Macedonia), restaurants, cultural sights and shopping in nearby towns, come into play!

In Europe, golfers pay between €20-50 for a round of golf, or they pay a yearly golf club membership of about €400. The membership allows them to play as much as they want. There is often the option of corporate membership, as a Corporate Social Responsibility benefit for company staff, and it represents one way of financing part of the construction and management of the golf course.

To design and construct an 18 hole golf course requires approximately 800.000 square meters of land and access to water. In Sweden, it costs approximately €2 million to construct a golf course. There are now 500 golf courses in Sweden alone. In South East Europe, with much lower labour and construction costs than in Northern Europe, the total golf course construction cost can be expected to be significantly lower. However, this cost excludes the land, which in many cases, as in Bansko, Bulgaria could be the municipality’s investment in a Public-Private Partnership to construct and manage the golf course.

On average, it takes 2 years to build a golf course, and make it ready for play. The golf course is often part of a larger resort and/or real estate development (again see Belek in Turkey), including the following operations – clubhouse with reception, café, restaurant, golf shop as well as driving range, putting green and pitch & putt area for practice. At places the clubhouse is in conjunction with a hotel and conference facilities. In many places the golf course is an integrate part of a real estate development, adding ‘quality of life’ to the overall area, and hence adding value to the private properties.

Hosting hefty wedding parties is the largest income stream for the small, but centrally located golf course in Moscow, Russia. (http://www.mcgc.ru/en) This course was initially built to cater to a fast expanding expat community in Moscow, following the introduction of perestroika and glasnost in the USSR, but now attracts mostly members and players from the new affluent Russian upper middle-class. A golf course in proximity to Pristina in Kosovo would find a ready market within its very extensive community of international organisations and donor programmes, as well as among the high number of western-educated young Kosovars, the generally sport interested and the Diaspora.

The donor agencies, always keen to support tourism as a sector with potential to deliver both economic growth and employment, could kick-start the golf tourism development process in the region, in two specific ways:

On the supply side, raise awareness about golf and golf’s linkages to tourism and real estate development in particular as well as its immediate and long-term impact on employment and overall economic activity. This could be achieved by organizing tailored study visits to golf courses and resorts in Turkey, Bulgaria and Montenegro for interested representatives of public institutions (i.e. municipalities), private enterprises (real estate developers, hotel owners, and other prominent local businesses) and donor agencies.

The goal of the study visits should be to create a realistic picture of the opportunities and challenges associated with golf and golf tourism in the region among the participating stakeholders. Special attention should be given to addressing the financial models (cost of construction and maintenance versus expected incomes) by which the golf courses can become engines for sustainable economic development in the region.

Successful golf course and golf tourism development will require a public-private partnership approach, and preferably within a regional context. Golfers do not like to play the same course day in and day out for a week, but would be happy to travel between three courses, in three countries, enjoying the best local cuisine, wine, culture and shopping along the way!

On the demand side, the donor agencies could assist by commissioning a feasibility study on the potential for golf tourism in the three countries of Macedonia, Albania and Kosovo, as a regional initiative. The feasibility study should go beyond the supply side, and quantify the current and future market for golf tourism (profile of demand, pricing analysis, etc.), and golf real estate as a second home (market potential, unit selling prices, etc.), which is popular among Northern Europeans in countries such as Thailand, Turkey and Spain. The feasibility study should also include potential site and location analysis as well as analysis of supportive activities (how do we activate the entire family?).

In conclusion, I repeat three immediate benefits of golf tourism:

  1. It brings in a whole new tourism target group to the region. This target group is more affluent than any other, it will stay longer, and it is active with additional interests that open up sub-markets for new tourism services;
  2. It is an anchor-client for (1) real estate development, (2) long-term living solutions and services (Medical tourism);
  3. It is a long-term job creator (golf course and real estate construction, golf course maintenance, golf resort management, hospitality services, supportive services, indirect employment, etc.)

Can you think of any other tourism sub-sector with the same potential impact on economic growth, employment and the image/brand of the region?

And for the final sales argument for golf course development, please be aware that there is not one single golf course in Macedonia, Albania and Kosovo today! This region is the only blank spot on the golf map of Europe!

Whoever is first will corner the market!

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Reducing Kosovo’s trade deficit – one bite/sip at the time

In 2012, Kosovo imported products for approximately €2.5 billion.  The import of foodstuff alone is approximately €300 million per year, second only to mineral products (gasoline, oil). This is a very sizable market. Unfortunately, Kosovo’s food-processing companies are still struggling to carve out a greater share of the domestic food and beverage market. As a result, Kosovo’s trade deficit continues to expand (over €2 billion in 2013).

Moving quickly from statistics to practice, let me illustrate the effects of this one-way (almost) trade flow in foodstuff by taking a peek inside our family’s refrigerator here in Pristina. The photo below is dated 2012:

Fridge 2012

What is the most striking in this photo is the fact that there is not one single food item or beverage produced in Kosovo in the refrigerator. Why not? At this point in time, I would say, it was mainly a quation of quality or rather a lack of consistency in the quality of food products. We would simply not risk buying the product again having been dissappointed about its quality.

Fast forward to 2014, and the composition of products in our refrigerator has not changed much (I guess our eating habits stay the same), but the products’ national origins have changed.

Fridge 2014

The fresh milk from Slovenia is still there (no surprise, it’s tasty!), together with the fruits and vegetables from other Southern European countries, and the Bulgarian white cheese and my Swedish lingonberry jam, but Kosovo produced yogurt and white cheese now have a permanent presence. There is also a noticeable increase in foodstuff from Turkey, while products made in Macedonia have fallen off the shelf. (Results of a free trade agreement and trade dispute respectively?)

The success of the Kosovo brand VITA and its yogurt in breaking into our family’s refrigerators may seem like a small step, but it represents a potentially giant leap for Kosovo’s food-processing sector. VITA has shown that Kosovo companies can compete successfully in a very competitive market, such as the dairy product market.

But be of no illusion, winning the battle for Kosovo’s refrigerators will demand much more than an import-substitution policy or a fancy “Buy-Kosovo-made-products” promotion campaign. To change the buying habits of customers, each new product must be equal in quality, price, packaging and distribution to the ones we buy today, or perceived as better even! Few people will compromise on any of these product characteristics, just because the product happens to be produced in the homeland.

This is what VITA understood and managed to do, and it is a strategy that other food producers in Kosovo could learn from (and other stakeholders supporting the economic development processes in Kosovo).

‘Import substitution industrialization (ISI) is a trade and economic policy that advocates replacing foreign imports with domestic production. ISI is based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products.’ (Wikipedia.org)

Exchanging imports with locally produced goods is clearly a good thing, as long as the value for the customer remains unchanged. Logically, an increase in local production of foodstuff would benefit the economy and society as a whole. An increase in locally produced foodstuff would increase demand for locally grown crops and bred animals, creating a boost for farming in Kosovo. Employment would rise as demand for labour in agriculture and in the food-processing factories increases. Kosovo families will end up with more disposable income in the pockets, part of which will be spent on Kosovo made foodstuff. A virtuous cycle will start to spin, imports will fall, and with time perhaps export of foodstuff will intensify. Good things all around!

So, why has import-substitution not taken place on a larger scale yet in Kosovo? The devastating trade deficit is a statistic that is reported upon year in and year out by Kosovo institutions and international organisations. It must be obvious to everybody that the negative trade balance is draining the country of scarce financial resources.

If we review the flow of foodstuff, from the agricultural field to the dinner table, we can identify three key actors in the supply-chain – the producers (farmers and food-processors), the retailers and the consumers (you and me). Starting with the consumer, we can conclude that a demand for foodstuff exists and the purchasing power is there to create a substantial market.

Producer to Customer

Moving across to the other side of the supply-chain, to the farmers and food processors, we find the first bottleneck in the supply chain. It is clear that, at this point in time, the Kosovo based agricultural producers and food processors cannot satisfy domestic demand by a mile. There is simply not enough local output of fruits, vegetables, meat, poultry, dairy, etc. Hence the current need for imports.

Looking ahead, we enter a ‘Chicken or Egg’ situation. What comes first, the local food producers offering a wider variety of products and in larger volumes to the retailers or the retailers/customers demanding more locally produced foodstuff?

Enter bottleneck number two in supply chain – the current relationship between local food producers and the retailers is heavily lopsided in favour of the retailers. The retailers hold the ‘ace’ card in controlling access to the customers (demand) and by sourcing products from a well-established network of international suppliers. Within this business model there is no perceived need for the retailers to change the way they do business – it’s working just fine. The local food producers, on the other hand, need access to more customers in order to grow. To do this they need to make a deal with the retailers. Consequently, the key to unlocking import substitution for foodstuff in Kosovo is firstly, but not solely with the retailers.

One possible way forward

Before anything, there is a need to raise awareness among the food retailers in Kosovo about the precarious situation of the economy, and its negative effects on the overall socio-economic situation in the country. Of equal importance is to highlight how they, as the dominant retailers of foodstuff in Kosovo, through their individual and collective actions can contribute to improving the wellbeing of thousands of people in Kosovo. The message to the retailers must be clear and targeted. For every €100 (euro) that stays in Kosovo, as a result of them buying Kosovo made products rather than imports, a specific number of families will benefit directly through employment, while the overall economy of Kosovo will benefit with a specific sum through direct and indirect taxation.

Establish a small working group consisting of key retailers and a selection of food producers in various product areas to further explore the current situation in a structured way. The situation refers to the socio-economic situation in Kosovo, and the status and characteristics of the Kosovo economy in particular. The working group should be moderated and facilitated by an external body, such as a local Business Support Organisation (preferably supported by external experts on business and economic development)

The initial task of the working group should be to attempt to make sense of the situation that the Kosovo’s economy is in and the current relationship between producers and retailers. This will happen by exploring contributing contexts, such as history, culture, social, politics, economics, international trade, etc. International good practices will be introduced to the working group members as means of triggering new ideas applicable to the Kosovo context. The logic here is this, that in order for any desirable systemic change to materialize, such as import substitution, it must be culturally feasible. In other words, the involved retailers and food producers must value the proposed change in order to act on it.

As a next step in the process of improving the business relationship between local food producers and retailers, the working group facilitators will work to identify and explore possible accommodation between the producers and the retailers. This is the moment when the producers present their available products, while the retailers present their product requirements. For example, the retailers will insist on the products having the ‘right’ price and packaging. HACCP certification is compulsory and so is adhering to Kosovo legislation on food security and safety. To make business with the retailers, the producers must be registered with the Tax Administration, offering proper invoices and paying VAT.

To assist the producers to present the best possible offers, the retailers, based on their extensive and detailed knowledge in many product areas, can share essential market and product information with the producers. The retailers know the exact prices paid for imported products, and how much they sell of each product per year. Based on this real market knowledge, the retailers can indicate a price range and expected sales volume per product. Based on this product price and volume information, the food producers can then make the required business models and calculations in order to decide whether or not there is a viable business in front of them to invest in.

Hopefully, the process of dialogue discussed above will contribute to building trust between the producers and retailers, which is essential for them doing business of mutual beneficial. Both the producers and retailers are in business to make a profit. For the retailers it makes no difference if they buy the products locally or import them, as long as they fulfill the basic criteria of satisfying the needs of the customers. Based on this new, more informed relationship, the working group, with the support of external facilitators, will move to define possible actions to change the current situation – to decrease imports by retailers purchasing an increasing number of products from local producers.

However, for the retailers’ purchasing patterns to change, the producers must dramatically boost their business operations. To accomplish this, they are in need of a combination of technical assistance and financial support. Generically this could include interventions to optimize production outputs, the introduction of food safety and food security standards, strengthening the human capital throughout the organization and introduce modern management methods and quality control systems. It could also include investments in new machinery, equipment and tools. Some producers may need to re-build their production units to accommodate HACCP requirements. To finance these performance-enhancing interventions, the producers must be able to obtain financial support from banks (loans) and/or other funding sources, on terms that are viable.

However, before any public and/or donor funded support interventions are instigated, the potential future business relationship between the producers and retailers must be put on paper. Far too often company investments and business support schemes are based on the assumption that if only the companies can increase outputs, then automatically the market (in this case the retailers) will absorb their products. Producing and selling a product that customers are willing to pay for is more complicated than that. If there is no substantiated demand for a specific product, market sense tells you that there is no business to be made.

Consequently, the key action to change and in creating a whole new situation on the food market in Kosovo will include the retailers signing letter of intents or even contracts beforehand with respective producers. The agreements should stipulate a purchasing price for each product (plus recommended sales price to end customer), and be linked to standards and requirements that the product must fulfill. Based on these agreements, public authorities and donor agencies should support the process by offering tailored technical assistance and financial support to the producers, as well as support to the Working Group’ s continuous explorations and change actions.

As a result, easily verifiable to all of us, the product composition in our refrigerators will never be the same again!

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This model doesn’t seem to work, now what do we do?

Kosovo, January 2014

The beginning of a new year offers the opportunity to take stock of the past, reflect on the current and look forward. Here follows a mix of anecdotes and facts, a snapshot of the current situation in Kosovo, as I see them going through my daily routines. Let’s start with health, which is clearly one of the most important issues for us, as human beings. In case a family member or friend fall ill, we are more likely to jump in the car and drive to the hospital in Skopje than venture into a medical clinic in Pristina. When push comes to shove we don’t have faith in our health system. The national water supply is running dry due to lack of snow and rain in recent months. In my apartment the water is usually turned off between 11.00-15.00 and 22.00-06.00, totaling 12 hours without running water every day. Now, the water is off for 18 hours a day. The water supply and infrastructure appear not to be up to par, which makes you wonder what the hot summer has in store for us. I am no electrical engineer but my feeling is that the electricity supply to my apartment is more consistent and stable nowadays (no cable has melted in the last year), and I assume we have a certain Turkish investor to thank for that. I still can’t dry the laundry on the balcony because of street dust, coal fumes and air pollution from the lignite-fuelled thermal power plant in Obilić that instantly penetrate the cloths. In 2004, the Ministry of Environment proclaimed that the Kosovo A power plant omitted about 2.5 tons of dust per hour (74 times higher than European standards). NY Times recently reported that in Obilić alone, 30% of the people are suffering from chronic respiratory diseases (July 11, 2011). From an environmental point of view, things does not appear to have improved in Kosovo during the last 10 years.

Leaving the comfort of my home, strolling towards Mother Theresa street, I reflect for a moment on the high occupancy levels in the city’s numerous cafes and restaurants. I see unemployment mixed with under-employment in those coffee cups. 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 %. The youth unemployment rate is additionally alarming when taking into account that 30% of the population of Kosovo is between 15-24 years old. 65% of the population is under 30, which makes Kosovo the country with the youngest population in Europe. This fact, we are to believe, is a competitive advantage, especially in relation to an aging Northern Europe. This conclusion is of course based on the assumption that there are enough employment opportunities in Kosovo to absorb this latent working force, which there isn’t. Not a pretty prospect for the future if you happen to be one of the 36.000 young and hopeful Kosovars entering (or rather wanting to enter) the labour market every year. Unless you head off to Northern Europe, that is.

Labour continues to be Kosovo’s most important export item, which generates an inflow of remittances financing a large share of domestic consumption.’ (EU Progress Report on Kosovo, 2010)

Crossing through Parkut të Qytetit, I see children in worn out shoes and unwashed cloths, sending out undisputable signals of malnutrition as they regularly visit the garbage bins in search of food and metal cans (income through recycling). Poverty comes in many shapes and forms, but to experience poverty in a child’s face, in 21st Century Europe is especially disturbing. The factors contributing to poverty are many, and may include poor education, lack of access to healthcare and food, lack of income or a combination of factors. Some people may experience poverty as a result of not finding a job that pays enough to live a decent life. In Kosovo, about 37% of the population lives in poverty (less than €1.42/day) and over 17% lives in extreme poverty (below €0.93/day). For the Roma, Ashkali and Egyptian minority the situation is even more precarious, with an estimated 40% living in extreme poverty. (UNDP Human Development Report 2012) An estimated 7% of the people in Kosovo are disabled, putting them in the group of least employable persons. (WHO report)

‘Economic growth without social progress lets the great majority of people remain in poverty, while a privileged few reap the benefits of rising abundance.’ (President John F. Kennedy)

The challenge in Kosovo is that there is not much economic growth to talk about. Current economic growth hovers around 2.5% (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 significant dent in unemployment. Kosovo’s GDP per capita is around €1.795, which is the lowest among Central European Free Trade Agreement (CEFTA) countries and at about 60% of Albania. Kosovo’s imports account for around 60% of GDP, while its exports cover only around 6% of GDP. Kosovo’s trade deficit is the highest in CEFTA and continues to increase (€602 million in first quarter of 2013). Export penetration remains extremely low creating the largest trade deficit as a ratio of GDP in the region (185% of regional average). The financial crisis slowed down Foreign Direct Investment (FDI) (7.1% of GDP in Kosovo) all over Eastern Europe, making attracting investors even more difficult for Kosovo. Remittances from Germany, Switzerland, Italy, and the Nordic countries (mainly Sweden) account for over 15% of GDP, while aid and donor-funded activities account for another 7.5% of the GDP (USAID/Kosovo Strategic Plan 2010-2014, 2010) The financial influxes of remittances and aid are bound to decrease over time, as the Kosovo Diaspora gets more embedded in their new societies, and the donor community moves on to rectify other more pressing issues elsewhere in the World. In summary, this means that the financial foundation of the Kosovo state is unstable as a consequence of its high dependency on remittances and foreign aid, and revenues generated by Customs, which in turn is under threat by free trade agreements.

With the public sector financially incapable of employing more people, the only viable hope to reduce unemployment lays with the private sector. In Kosovo, less than 0.1% of all registered companies are large in size, meaning they have more than 250 employees. This means that 99.9% of the 120.000 registered enterprises are micro-, small- or medium in size. (Business Registry, 2012) However, this does not mean that all 120.000 companies are active, generating sales, economic growth and employment. To the contrary, less than 20% of all registered companies in Kosovo are active and pay taxes, according to the Kosovo Tax Administration. From these data we can conclude that private sector activity is very low, there is a high mortality rate among companies (16.7% more businesses closed in 2013 than in the year before), the informal sector is significant, and the government cannot rely on revenue collected from the private sector to even partially finance its public policy commitments. The total revenue collected by the Tax Administration in 2012 amounted to €396.9 million. Although an increase by 9% on the previous year it is ‘still insufficient to represent a sustainable source of revenue’. (EU progress report 2013) Unfortunately, the private sector in Kosovo today can best be described as a ‘survival mechanism’ whereby individuals generate some kind of ad hoc income to pay the bills and feed the family. It is hardly the engine of economic growth and savior of the nation’s finances that we would all like it to be.

What is to be Done?

Until now I have presented a personal collection of anecdotes and facts that nonetheless point towards systemic shortcomings in the Kosovo situation, that when webbed together reveals a model that is simply not delivering on the fundamental requirements of the population. However, Kosovo is far from alone in discovering the limitations of the prevailing socio-economic-political model, and in experiencing a recent upsurge in poverty and inequality.

“It is staggering that in the 21st Century, half of the world’s population – that’s three and a half billion people – own no more than a tiny elite whose numbers (85 persons) could all fit comfortably on a double-decker bus.” Growing inequality in the world has been driven by a “power grab” by wealthy elites, who have co-opted the political process to rig the rules of the economic system in their favour”. (Winnie Byanyima, the Oxfam executive director, on findings of Oxfam’s publication “Working For The Few”, January 2014)

I feel a bit uneasy quoting Vladimir Lenin (I am generally not a fan of communism’s societal solutions), but there is something acutely contemporary in the title of his revolutionary pamphlet ‘What is to be Done?’ published in 1902. In the case of Kosovo 2014, I believe, as an initial step to change its current course of chronically under-performing development, it’s time to first face reality, talk truthfully about the situation we are in, stop the spinning of development results and accept that the current model is simply not delivering. (If it is delivering, why do so many (young) citizens queue outside Western embassies for visas and/or are actively seeking to leave the country?) For years now the predominant model has pursued a ‘systematic route’ to change, meaning it has produced more and more of the same (more imports, more strategies, more projects), while ignoring the big picture, and the fact that there are no real improvements in the wellbeing of Kosovo citizens. To achieve improvements in health, pollution, employment, poverty, economic opportunities and other areas of society we must pursue a ‘systemic route’, opening up the possibility for ‘a change that changes the whole situation’ (second-order change).

But the $100.000 question remains, who will instigate and implement this change process? Before attempting to answer this question, let’s explore who are the candidates, the potential generators of change in Kosovo today? In my opinion, the socio-economic-political model currently in place in Kosovo (and in many other countries for that matter) consists of a strong and mutually reinforced triangular relationship of power. Three vertices (group of actors) dominate, determine and drive the system of development in Kosovo. It’s a triangular symbiosis represented by the Kosovo’s political elite (vertex 1), a business elite (vertex 2) and the international donor community (vertex 3).

triangle

Two other actors that are usually quite influential in shaping the public policy debate in more mature democracies – the media and civil society – play a very subdued role in Kosovo. Both the media and civil society often appear to be sub-ordinate to or entangled with the powerful three, for whatever reasons, which hinders the media and civil society from playing the constructive and critical roles that are expected of them in a well-functioning democracy.

pentagon

However, it’s within this new potential pentagon (five vertices) of public debate, checks and balances, mutual trust and shared responsibility that we also find the potential generators of change in Kosovo. Or rather, change may be generated as a result of their capacity to cooperate constructively among each other. Long-term and sustainable change cannot be achieved by one of the pentagon’s vertices alone, no matter how hard it tries.

Let’s return for a moment to the current situation. Kosovo’s political elite includes leading representatives of all functions of government and public administration. Political parties rotate in and out of power through democratic elections, in line with universally held principles of democracy. This is a good thing. However, to hold ‘power over others’ appears to be the main political driving force in modern Kosovo, rather than policy. It is therefore rather difficult to appreciate whether a certain political party is adhering to a left leaning vision of socio-economic development, or it favors the solutions held dear by the political right elsewhere in the world. Rather, the core dividing line in Kosovo politics (as in many other transitional countries) appears to be power itself, either you have it or you don’t. When in power you are inclined to act a certain way to hold on to power as long as possible, while when in opposition you act very differently with the sole aim of assuming power as soon as possible. Policy appears to play no major role in shaping politics. Short-term thinking and actions prevail in a situation where more long-term strategic thinking and inclusive collective actions are desperately needed.

On the second vertex we find Kosovo’s ‘nouveau riche’ business elite. This group of individuals and corporations has acquired their wealth rather quickly by pursuing one or both of two core business models. One, by staying close and supportive to the political elite they are winning public tenders and delivering products/services to the state. Within this business model the source of income is the national budget through government spending. In 2013, general government expenditure was €1.6 billion, while its revenue was €1.4 billion. (economywatch.com) Public spending, in particular on infrastructure projects (road construction), has been the main driver of domestic growth in recent years in Kosovo. Business model number two involves importing everything from petrol to tomatoes, and selling the goods on the Kosovo market. Here, the source of income is citizens’ private consumption. In 2012, Kosovo imported products for approximately €2.5 billion, while exports amounted to a trivial €181.5 million. (Kosovo Agency of Statistics) Limited exports mean that very little fresh money is entering the Kosovo economy. The only silver lining to this ‘trade-deficit-boosting-model’ is the income generated by the Customs (tax on imports) for the national budget. In 2012, this amounted to €844 million, making Customs the largest contributor to the Kosovo budget. (EU Kosovo report 2013) However, the current wave of free trade agreements will dramatically decrease this source of revenue, putting additional pressure on the national budget, and will certainly constrain further public spending. Now tell me who thought free trade was a good idea for a country like Kosovo that manufacturers very little, let alone exports hardly anything?

Enter the large and sometimes overwhelmingly influential third vertex, the international donor community. After more than 15 years of international presence, it is safe to say that there is no area, no issue, no matter how small, in the social, political and economic life of Kosovo that has not felt the guiding hand of the numerous donor agencies active in Kosovo. Under the flag of reconstruction, institution-building and capacity-building, other countries’ tax payers’ money have been and are spent on building a new sovereign state capable of managing its own affairs. It’s estimated that between 1999 and 2010, Kosovo received €4 billion in aid, about 15% of GDP (Euronews, 17.02.2010) At the international donors conference of 2008, €1.2 billion were raised in support of Kosovo. But, even too much free money can turn into a bear’s hug, causing unintended, and sometimes negative consequences, which will take years to fix. One example is the distortion of the local labour market. The average salary of a civil servant in Kosovo is €386 per month and the total overall average salary is €355 per month. On average the salaries are lower in the private sector (Kosovo Agency of Statistics). A long-term staff on a donor funded project will make no less than €1.000 per month, with associated external consultants bringing in more than €100 per day! So, with two non-productive sectors of the economy – public administration and donor-funded projects – paying more, who wants to take the risk and work in the private sector, let alone start a company? From a human capital point of view, the distortion of salaries in favor of the public sector and donor world is pulling capable individuals away from the productive private sector. Potentially successful entrepreneurs and employers are now project managers or civil servants, rather than the next generation’s generators of wealth, economic growth and employment in Kosovo.

In discussing the international donor agencies’ influence on the Kosovo state and society, one often hear the comment, “whoever pays, chooses the music”, which when taken to its logic conclusion in the context of development means something along the line of “It’s our money, so we decide on what to spend it and how”. So much for the noble proclamations about increased local ownership. Also, this approach puts the local institutions in a precarious situation, in which saying ‘No’ is not an option. They simply cannot afford to. In this ‘project-driven’ world, the donors present themselves to be ‘strengthening’ Kosovo – one project at the time, but again the real improvements in society are simply not there to be seen. The choice is not between accepting foreign aid or not, but to make the most of the available financial and technical resources by tailoring foreign aid to ensure long-term improvements in Kosovo society rather than the achievement of short-term activities and indicators. The same way that the local political and business elites need to take stock, reflect on the current situation, what has been done until now, what worked and what didn’t as well as what they can do differently in the future to produce improvements in society, the international donor community needs to reflect on the fact that it has been at it for 15 years now in Kosovo, and if the data on health, pollution, unemployment, poverty and on weak economic performance are anything to go by, well then at least we have to consider the notion that the current development frameworks and methods are perhaps not delivering the results we had hoped for.

At this point in the article, I am surely being accused of being a typical consultant, as the joke goes, ‘coming out of nowhere, uninvited and telling people something they all already know’. Well, ok, let’s return to the $100.000 question on who will initiate and implement the required change, and allow me a moment more of your time to present my case.

“Independence did not resolve anything. For those who thought that independence alone would solve Kosovo’s problems, as if by magic, they must realise that the problems remain. It didn’t make matters worse, but things weren’t resolved. Right from the start, we knew that Kosovo would be a real economic problem. It’s a country without natural resources, industries and strong agriculture. It’s a poor country, without infrastructure … The problems have become worse because of the lack of a competent administration, the lack of public policies, the lack of a political elite – economic and social – capable of launching a real public policy project for this country.” (Jean-Michel de Walle, expert in Eastern European affairs at the Université Libre Bruxelles, 2010)

The economic problem in Kosovo is real, but I would not argue that it is a result of the country being without ‘natural resources, industries and strong agriculture’, (that’s too fatalistic) rather the failing economy is a result of our lack of internal capabilities and/or will to make full use of available resources (natural and human), develop economies of scale industries and explore our agricultural potential to the fullest. Kosovo is not predestined for poverty, but it’s only by our own individual actions that we can change course for the better.

For me to produce a program for systemic change in Kosovo would be presumptuous to say the least.  And to keep on preaching solutions from the outside would contradict my core argument about the importance of local ownership and sense of responsibility. However, as a guiding light moving forward, keep in mind that what we ‘value’ determine how we act in life. If we ‘value’ a clean environment, we will throw the Snickers wrap in the garbage bin. If we ‘value’ a more equal society, our policy priorities will be poverty-reduction and employment creation. The message is as profound as it is simple, and it places all of us, as individuals, in the driving-seat of change and development. Our individual value-based choices determine what desirable actions are actually culturally feasible. I will now venture out, highlighting a few key issues, which, I believe, are essential to boost positive change in Kosovo.

First, positive change in the socio-economic-political situation in Kosovo can only emerge as a result of collective actions that are conceptualised and implemented by Kosovo institutions (public, private and civil society) and the general public. The international donor community’s role should be to support, partly fund, but not to micro-manage the process, allowing for a broad, healthy policy debate to tease out accommodation among different interests in society and most importantly to allow for a trial and error process, full of real learning experiences among local institutions and society as a whole. In other words, it’s time for the donor agencies to reduce the pampering and spoon-feeding, allow the new state to take their own decisions and make their own successes and mistakes from which to learn and move forward. It’s all a natural part of the growing up process.

Second, introduce and enforce E-Government throughout public administration. Make public records available to the public! Transparency is the number one ‘Diminisher’ of favouritism, elitism and corrupt practices. Transparency also contributes to building trust between institutions and citizens, and among citizens themselves. Transparency is an essential element in strengthening a society’s social capital.

Third, reduce the size of public administration. Increase the salaries of the remaining staff and make them accountable to their job descriptions and organisational goals. The role of the civil servant is, as its name reveals, to serve the citizens, but also to promote civility and defend the interests of the state (and future generations). The key is to make being a civil servant a respectable profession. This will require that our expectations of the civil servants and public administration are more in line with Max Weber, who argued that a bureaucracy is the most efficient way of organising human activity, and its goal is to maximize efficiency and eliminate elitism. The Ottoman and communist approach to public administration were quite different, acting more like an extended arm of the rulers to supress the citizens while at the same time serving the personal interest of state officials and the rulers. Hiring civil servants based on ‘what’ they know, and not ‘who’ they know, seems a good place to start the change process.

Fourth, the Kosovo private sector, the productive sector that is supposed to generate both employment and revenues to the state is in desperate need of a complete overhaul and a jump-start. The economy does not need more start-ups and entrepreneurial spirit. Recent statistics show that a very large majority of Start-ups fail and close down before their third year of operation, incapable of generating profits on a relative small, crowded and protective market. The public policy objectives of entrepreneurship programs, measured in an increase in economic growth and employment, remain not satisfied. Rather the focus should move to the market leaders, to the very few Kosovo companies that are internationally competitive, or those that have the willingness to invest their own resources in order to improve their international competitiveness. We need to think BIG first and now, not small, in order to facilitate for the Kosovo economy’s real and rapid integration in the world economy. We need to think manufacturing and provision of services for export markets and economies of scale to effectively reduce unemployment. For this we don’t need more entrepreneurship training, business plan competitions and self-employment. What we need is smarter corporate management, stronger organisations and more old-fashioned hard work. It’s not until we are internationally competitive that our producers will be capable of taking on the imports at home. Consequently, a policy push for import-substitution must be based firstly on a push for improving the performance and competitiveness of individual local companies, and not on restricting access of imports to the Kosovo market. And history tells us that no country has managed to reduce unemployment and accumulate wealth without a push for manufacturing, at some point in their economic development. Take a good look at China and Turkey today, Taiwan and Hong Kong before them, and about a hundred years ago the industrial might of Germany was cemented (and in Germany’s case manufacturing is still a core sector of the economy and creator of sustainable employment, unlike in the US where much of the production has been outsourced).

Manufacturing and exports hold the key to boosting the economy of Kosovo. However, we must realise that to some extent we are starting from scratch. There are very few manufacturers today that have the output volumes required to enter international supply chains. We have to create a new generation of industrialists in Kosovo. The importers and retailers, companies that have accumulated a substantial wealth in recent years, and clearly possess the most important business skill – to sell, are the most obvious candidates for leading this drive for the re-industrialisation of Kosovo. These companies, unlike any others in Kosovo today, have the financial, human and management resources to pull it off, as long as the corporate owners have the will to do so. From a business point of view, there is much to be gained by moving from import/retail on the small Kosovo market to manufacturing for the global market, as recent data from the region clearly illustrates. Macedonia (FYROM) exported €472.7 million worth of apparel products in 2011 (approximately 2.5% of GDP and 40.000 employees in the sector). With its traditions in apparel manufacturing and the fact that it is a relatively easy business to enter, Kosovo should be able to replicate Macedonia’s growth model in the apparel sector. Bulgaria is the number one exporter of medicinal plants in Europe, and the fourth largest exporter in the world. Bulgarian exports approximately 15.000 tons per year, mainly from cultivated herbs and spices. In Kosovo, most herbs and berries are collected in the wild. Hence, moving into cultivation could dramatically increase export volumes. In 2010, Serbia was the world’s largest producers of raspberries (63.000 tonnes), with total export sales of $200m. With its similar climatic and soil conditions, cultivation of berries constitutes a real business opportunity in the rural and mountainous regions of Kosovo. In neighbouring Albania, the footwear sector exported for $298m in 2011, mainly to Italy. With the completion of the highway to Albania reducing transportation time, footwear production opportunities in Kosovo should be of interest to the Italian buyers. As shown, there are enterprises and sectors in the region that are internationally competitive and there is no reason why Kosovo companies should not be able to reach the same levels of competitiveness and market outreach assuming that adequate managerial skills, technical support and government (donor) incentives are available. In turn, a few well performing and export-oriented companies will increase demand for other products and services supplied by smaller companies in Kosovo. The exporting companies and their management will act as road-models for the next generation of companies and managers. And finally, these exporters will generate new revenue for the state through taxes, and will contribute to an increase in viable employment.

Fifth, and final, the media and civil society must rise to the task, and challenge constructively the existing model, its triangular relationship of power and their proclaimed development results. By challenging the status quo in society, demanding more transparency and accountability in public affairs and promoting broader stakeholder involvement in public policy formation and implementation, only then will the media and civil society have done their job properly.

In conclusion, and to my defence, I am well aware that there are countless other challenges affecting the people in Kosovo than those I have brought forward. I am equally aware that my five key issues are not the only ones out there that will automatically set Kosovo off in the right direction, leading to prosperity, equality and happiness. There are other systems that need addressing as well, such as the legal system (how will it cope without EULEX?), the education system (quality assurance, business orientation and too much focus on higher education?), the financial system (how to bring down the lending  rates?), etc., and then we have the issues of Kosovo’s international recognition and its bilateral relationship with Serbia.

However, we must be optimistic, constructive and pro-active in order to induce change within ourselves. We must recognise that systemic change involves taking simple actions within complex situations and not allowing the situation’s complexity to overwhelm us, stopping us from taking any action at all.

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Why food is so expensive in Kosovo?

Food and beverage prices in Bulgaria are half of what they are in Kosovo. Whoever has been skiing in Bansko or studying at the university in Blagoevgrad knows that the lower prices are not a consequence of Bulgaria being a poor country. So, how is possible that prices in Bulgaria, a EU Member State since 2007, are lower than in Kosovo? There are two main reasons.

One, a large portion of the food and beverages consumed in Bulgaria, are actually produced in Bulgaria. Two, there exist fierce competition among retailers, including large international wholesalers. The two reasons are important in their own right, but they are also deeply intertwined.

If the ambition is to reduce food and beverage prices in Kosovo there is much to learn from the Bulgaria case. But be aware, it is not an easy road to maneuver yet it’s a virtuous path that will lead to leaps in economic growth and employment in Kosovo, and to significant improvements in the wellbeing of Kosovo citizens.

Let’s first look closer at domestic production. When Bulgaria threw off the chains of communism in 1989, the state-owned food-processing sector began a fast descent into disarray. Local output fell. Imports boomed. Poor privatization killed off hundreds of food-processing factories. There was a time when Danish feta cheese and French yogurt were replacing Bulgarian bred and produced white cheese and ‘sour milk’ – the national treasures. Why? Well simply put, the Bulgarian producers, if they were still operational that is, could not deliver the ‘right’ price, quality and quantities. Sounds familiar to today’s situation in Kosovo, doesn’t it? Add to the micro-economic difficulties of Bulgarian producers, government policies and customs regulations that favored imports and importers. Customs officials grew rich, and so did a political elite and the importers, while the Bulgarian people grew ever poorer. In January 1997, as the government fell under the full weight of hyperinflation and social unrest, the average pensioner in Bulgaria could purchase two chickens for his/her pension per month. Nothing more. Enter reform and a determined path towards EU and NATO membership, which are both now achieved.

With the political future of Bulgaria cemented in Western institutions, large financial wealth that had been previously tucked away abroad returned to Bulgaria, and was invested in tourism (Sunny Beach, Bansko, etc.) and other productive economic activities, including food-processing. A large number of local food and beverage factories were sold to multinational food companies, such as Nestle (chocolates), Danone (dairy products), Carlsberg (beer). Government, at this point in time still without the financial resources to directly support business development, focused on ensuring a positive business environment in those early years of post-crash economy rebuilding.

Enter METRO Cash & Carry. Nobody has done more to improve the supply of food products in Bulgaria than this German wholesaler. Its entrance on the market in Bulgaria was transformational to say the least. It opened up the opportunity for Bulgarian producers to sell their products, not only through METRO’s wholesale shops in Bulgaria, but throughout its network of shops internationally. But there was a catch, and it was this catch that changed the Bulgarian food and beverage market forever. To be let in the door, to sell their products on the shelves of METRO, the Bulgarian food and beverage producers had to fulfill EU levels on food safety and food security (HACCP certification became compulsory, not because the state required it, but because the market demanded it!), the packaging had to be professional and so the labeling. And most important for us customers, the price had to be ‘right’, meaning much, much lower than what the producers were used to from selling on a small, and relatively protected market.

Some producers could not cope with the increasing costs induced by METRO’s requirements, while others flourished. As they managed to achieve a product quality that matched the imported goods, the Bulgarian producers had two competitive advantages – a taste that was familiar to the customers, and lower transport costs, resulting in a competitive end price!

At this time, the state started to invest in supporting the private sector, and made the most of available donor support to strengthen the internal performance of key producers, in key sectors of the economy. Suddenly, the impact of access to EU agricultural and rural development funds could be seen in the countryside, as new fruit and wine orchards were planted, idle farm lands were again cultivated. As demand for locally produced food grew, supply did it’s best to keep up.

In the years that followed METRO’s entrance, other international retailers, such as Lidl, Kaufland, Carrefour and Billa followed, and a wide variety of local supermarket chains sprung up, positioning themselves closer to the end customers. As a result, the Bulgarian customer now enjoys a ‘real’ choice in deciding where to shop, and what products to buy, as a result of ‘real’ competition.

To achieve a similar positive situation for consumers in Kosovo, two fundamental steps have to be taken in order to generate desirable  long-term improvements. One, importers and retailers of food and beverages, and other Kosovo enterprises for that matter, must be incentivized to invest in and manage their own food-processing operations. With the recent wave of free trade agreements, there is little room to ‘support’ local manufacturers through protective measures, rather the focus should be on offering financial incentives and technical assistance to those importers/retailers/enterprises willing to move into production. Two, Kosovo authorities should wholeheartedly welcome multinational retailers to invest and operate in Kosovo. The presence of retailers such as Conad (Italian), Merkator (Slovenian) and Carrefour (French) in Albania has had the same positive impact on end prices and quality of food and beverages, as METRO et al. are having in Bulgaria.

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