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Kosovo

Executive Summary

Despite being one of Europe’s youngest and poorest countries, Kosovo has recorded positive economic growth rates, averaging almost four percent, during the last decade.  Kosovo has potential to attract foreign direct investment, but that potential is constrained by failure to address several serious structural issues including: limited regional and global economic integration; political instability and interference in the economy; corruption; an unreliable energy supply; a large informal sector; difficulty establishing property rights, and tenuous rule of law, including a glaring lack of contract enforcement.  The country’s ability to sustain growth relies significantly on international financial support and remittances.

The COVID-19 pandemic is unlikely to lead to significant permanent changes in investment policies.  As of April 2020, the government had enacted several emergency relief measures that did not require legislative changes.  These measures are all temporary and focused on maintaining employment levels and helping businesses maintain liquidity.  As such, they do not affect the broader investment policy environment.  The government also announced a package of economic recovery measures, but as of April 2020, it was still working on finalizing the package.

Many international financial institutions have forecasted economic growth rates in Kosovo to fall from a pre-pandemic projection of four percent positive growth to a post-pandemic contraction of up to five percent.  This includes the IMF (-5 percent), World Bank (-4.5 percent) and European Bank for Reconstruction and Development (-4.5 percent).

In 2019, net flow of foreign direct investment (FDI) in Kosovo was estimated at USD 292 million, close to the 10-year annual average of USD 296 million.  The stock of portfolio investment in 2019 totaled USD 2.05 billion, with equity securities of USD 1.67 billion, and debt securities of USD 385 million.  Real estate and leasing activities are the largest beneficiaries of FDI, followed by financial services and energy.  The food, IT, infrastructure, and energy sectors are growing and are likely to attract new FDI.

Though justice sector remains weak in implementation, Kosovo’s laws and regulations are consistent with international benchmarks for supporting and protecting investment.  Kosovo has a flat corporate tax of 10 percent.  In 2016, Kosovo ratified a strategic investment law intended to ease market access for investors in key sectors, and the government partnered with USAID and other international donors to launch the Kosovo Credit Guarantee Fund, which improves access to credit.  With USAID assistance, the Government of Kosovo continued a series of business environment reforms which contributed to improving Kosovo’s ranking and score in the World Bank Doing Business Report over the years.  In the 2020 Doing Business Report, Kosovo ranked 57 out of 190 economics surveyed and was recognized as one of the top 20 most improved economies in the world.

Property rights and interests are enforced, but weaknesses in the legal system and difficulties associated with establishing title to real estate, in part due to competing claims arising from the history of conflict with Serbia, can make enforcement difficult.  Kosovo has a good legal framework for protecting intellectual property rights (IPR), but enforcement remains weak, largely due to lack of resources.  While IPR theft occurs in Kosovo, it is not widespread.

All legal, regulatory, and accounting systems in Kosovo are modeled on EU standards and international best practices.  Publicly-listed companies are required to comply with international accounting standards.  Investors should note that despite regulatory requirements for public consultation and establishment of an online platform for public comments (http://konsultimet.rks-gov.net), some business groups complain that regulations are passed with little substantive discussion or stakeholder input.

Recently, the political environment has been characterized by short electoral cycles and prolonged periods of caretaker governments.  (For example, the current government, formed in February 2020 collapsed 50 days later and has been in caretaker status since).  While the environment in the country is growing increasingly politicized, the Embassy is not aware of any damage to commercial projects or installations.

The public consistently ranks Kosovo’s high unemployment rate (officially 25.7 percent in 2019) as among its greatest concerns.  Unemployment levels for first-time job seekers and women are considerably higher than the official rate.  Many experts cite a skills gap and high reservation wage as significant contributing factors.

Despite the challenges, Kosovo has attracted a number of significant investors including several international firms and U.S. franchises.  Some investors have been attracted to Kosovo’s relatively young population, low labor costs, relative proximity to the EU market, and natural resources.  Kosovo does provide preferential access to the EU market through a Stabilization and Association Agreement (SAA).

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 101 of 175 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 57 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 N/A https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2018 USD 213 Million http://data.imf.org/CDIS
World Bank GNI per capita 2018 4,220 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

9. Corruption

Opinion polls attest to the public perception that corruption is widespread in public procurement and local and international businesses regularly cite corruption, especially in the form of political interference, as one of Kosovo’s largest obstacles to attracting investment.  Kosovo has enacted strong legislation to combat corruption, but the government has thus far been unsuccessful in efforts to investigate, prosecute, jail, and confiscate the assets of corrupt individuals.  The government has enacted other measures to address corruption, including a requirement to conduct all public procurement electronically and to publish the names of contract winners.  The government also recently dismissed the boards of several SOEs, citing mismanagement.

The Kurti government, which started its mandate in February 2020, but fell in March 2020 and as of May 2020 was in caretaker status, took a number of concrete steps to combat corruption and political interference, but given its short tenure was not able to institutionalize all of its measures and change the perception of political interference in public administration and the judicial system.  The Anti-Corruption Agency and the Office of Auditor General are the government agencies mandated to fight corruption.

The Law on Prevention of Conflict of Interest and Discharge in Public Function as well as the Law on Declaration, Origin, and Control of Property of Public Officials are intended to combat nepotism.  They require senior public officials and their family members to disclose their property and its origins.  The Criminal Code also punishes bribery and corruption.

The Embassy is unaware of any government activity to encourage private companies to establish internal codes of conduct.  The embassy is also unaware of local industry or non-profit groups that offer services for vetting potential local investment partners.

In 2016, the Kosovo Assembly approved amendments to the Law on Anti-Money Laundering.  The EU-compliant law supported Kosovo’s membership in the Egmont Group, a network of 152 Financial Intelligence Units (FIU) where the members exchange expertise to combat money laundering and terrorist financing.  Money laundering is believed to be most common in the real estate, construction, and gambling sectors.  Kosovo’s FIU is an independent governmental agency that leads Kosovo’s efforts to investigate economic crimes.

U.S. companies operating in Kosovo must adhere to FCPA requirements.  Kosovo participated in 2013 as an observer member in the anti-corruption conference organized by the United Nations Convention Against Corruption (UNCAC), and has attended several international conferences on anti-corruption with the support of the Council of Europe and UNDP.  Kosovo’s laws protect NGOs that investigate corruption.

Resources to Report Corruption

Shaip Havolli
Director, Kosovo Anti-Corruption Agency
Nazim Gafurri Street, No. 31, Pristina, Kosovo
+381 38 518 980
Email: shaip.havolli@rks-gov.net

Hilmi Jashari
OMBUDSMAN
The Republic of Kosovo OMBUDSPERSON Institution
Str. “MIGJENI”, no. 21, Pristina, Kosovo
+383 (0) 38 223 782
Email: hilmi.Jashari@oik-rks.org

Ismet Kryeziu
Executive Director
Kosovo Democratic Institute
Bajram Kelmendi Street, n/45, Pristina, Kosovo
+381 38 248 038
Email: ikryeziu@kdi-kosova.org

Jeta Xharra
Executive Director
Balkan Investigative Reporting Network Kosovo
Menza e studenteve, kati i pare, 10000 Prishtine, Kosovo
+ 381 38 22 44 98
Email: jeta@birn.eu.com

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