Already one of Europe’s poorest countries, Kosovo was hit hard by the COVID-19 pandemic but recovered quickly. Although economic growth estimates for 2021 differ significantly between the Central Bank of Kosovo’s 9.9 percent estimate and the International Monetary Fund’s (IMF) 7.5 percent estimate, both point to a robust economic recovery and faster growth rates than initially forecast. A large inflow of remittances and diaspora tourism combined with increased exports contributed to this growth. Although many international financial institutions remain cautious in forecasting economic growth for 2022 given the unpredictability of the pandemic and global supply chain shocks, most expect Kosovo’s GDP to grow between 3.8 and 4 percent.
The pandemic has not led to permanent changes in Kosovo’s investment policies. The government enacted several relief measures that are all temporary and focused on maintaining employment levels and helping businesses preserve liquidity. As such, Kosovo’s COVID-19 relief measures did not significantly affect its broader investment policy environment.
Kosovo has potential to attract foreign direct investment (FDI), but that potential is constrained by its failure to address several serious structural issues, including limited regional and global economic integration; political 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. Its ongoing dispute with Serbia and lack of formal recognition by many countries and international organizations, including the lack of membership in the United Nations, also create obstacles to doing business.
Increased energy prices throughout Europe, particularly in the last quarter of 2021 through the first quarter of 2022 exposed Kosovo’s vulnerability to energy price shocks and its serious issues with energy reliability. By January 2022, the Kosovo government had to subsidize the energy sector in the amount of €90 million (about 1.3 percent of GDP) and increase energy tariffs to cover the cost of increased energy imports. Kosovo also faced blackouts due to maintenance issues at its two dilapidated coal-fired power plants. The Energy Regulatory Office in February 2022 instituted block tariffs for residential consumers but did not change electricity prices for businesses.
In 2021, the net flow of FDI in Kosovo was estimated at $466 million, a significant increase over the 2020 amount of $382 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.
One key sector of the economy that has sustained strong growth is the wood processing sector. Companies producing kitchens, baths, doors, upholstered furniture, and combined wood, metal and glass have seen increased investment since 2017. The sector is maturing and receiving support in business development services and access to finance. Kosovo is also addressing its energy security by increasing its renewable energy capacity and facilitating more bankable renewable projects. Kosovo has also rapidly increased the exports of bedding, mattresses, and cushions, but this development has mainly been concentrated within a few companies.
Kosovo’s laws and regulations are consistent with international benchmarks for supporting and protecting investment, though justice sector enforcement remains weak. Kosovo has a flat corporate income tax of 10 percent. In 2016, the government partnered with the United States Agency for International Development (USAID) and other international donors to launch the Kosovo Credit Guarantee Fund, which improves access to credit. With USAID assistance, Kosovo passed legislation to establish a Commercial Court, which aims to handle business disputes fairly, efficiently, and predictably and is expected to improve the business enabling environment by reducing opportunities for corruption and building investor and private sector trust in the judiciary.
Property rights and interests are enforced, but legal system weaknesses and difficulties associated with establishing title to real estate, in part due to competing claims arising from the history of conflict with Serbia, make enforcement difficult. Kosovo has a legal framework for protecting intellectual property rights (IPR), but enforcement remains weak, largely due to a lack of resources. While IPR theft occurs in Kosovo, there is insufficient data on how widespread the issue is. The issue does not get attention in the media, and the U.S. Embassy in Pristina has not had significant complaints of IPR theft in Kosovo from U.S. companies. Anecdotally, the IPR theft that occurs tends to be mostly in lower-value items that likely do not garner significant attention.
All legal, regulatory, and accounting systems in Kosovo are modeled on EU standards and international best practices. All large companies are required to comply with international accounting standards. Investors should note that despite regulatory requirements for public consultation and the 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.
In Kosovo’s recent history, the political environment has been characterized by short electoral cycles and prolonged periods of caretaker governments. However, the current governing coalition has an overwhelming majority, and all indications point to the likelihood that it will remain in place for much, if not all, of its four-year term. In addition, there have been few substantive changes in legislation and regulations on foreign investment and the general business environment despite previously short electoral cycles. To date, the U.S. Embassy in Pristina is not aware of any damage to commercial projects or installations. The government, which took office March 2021, ran on an anti-corruption platform and has a strong electoral mandate to enact positive change.
The public consistently ranks Kosovo’s high unemployment rate (officially 25.9 percent in 2021) 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 are attracted by Kosovo’s relatively young population, low labor costs, relative proximity to the EU market, and natural resources. Global supply disruptions brought on by the COVID-19 pandemic have sparked greater interest recently from some businesses to utilize Kosovo as a base for near-shoring production destined for the EU market. Kosovo does provide preferential access for products to enter the EU market through a Stabilization and Association Agreement (SAA).
|TI Corruption Perceptions Index||2021||87 of 180||http://www.transparency.org/research/cpi/overview|
|Global Innovation Index||2020||N/A||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2020||USD 283 Million||http://data.imf.org/CDIS|
|World Bank GNI per capita||2020||USD 4,480||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Kosovo welcomes FDI. Kosovo’s laws do not discriminate against foreign investors. The current government (as the government before) – including the Prime Minister’s Office; Ministry of Economy; Ministry of Industry, Entrepreneurship and Trade; and the Ministry of Finance, Labor and Transfers – recognizes the importance of FDI to the expansion of the private sector.
The mission of the Kosovo Investment Enterprise and Support Agency (KIESA) is to promote and support foreign investments. The agency is tasked with offering a menu of services, including assistance and advice on starting a business in Kosovo, assistance with applying for a site in a special economic zone or as a business incubator, facilitation of meetings with different state institutions, and participation in business-to-business meetings and conferences. In practice, however, many foreign and local companies have complained that KIESA has extremely weak capacity to provide the services under its mandate and must be strengthened.
Foreign chambers of commerce – including the American, German, and European – participate in dialogue platforms with the government, although overall communication between the government and the private sector has slightly deteriorated recently.
The laws and regulations on establishing and owning business enterprises and engaging in all forms of remunerative activity apply equally to foreign and domestic private entities. Kosovo legislation does not interfere with the establishment, acquisition, expansion, or sale of interests in enterprises by private entities. Under Kosovo law, foreign firms and local businesses operating in Kosovo are treated equally. Kosovo does not have an investment screening mechanism, though the U.S. government is actively working with Kosovo on the best practices for developing and implementing such a mechanism.
There have been no reports of restrictions from U.S. investors. There are no licensing restrictions particular to foreign investors and no requirement for domestic partners for joint ventures.
Kosovo is not a member of Organization for Economic Cooperation and Development (OECD), World Trade Organization (WTO), or United Nations Conference on Trade and Development (UNCTAD), so there are no Kosovo-specific investment policy reviews from these organizations. However, Kosovo was profiled as part of the OECD’s report on “Competitiveness in Southeast Europe 2021: A Policy Outlook,” in which Kosovo received an overall score of 2.0 in the area of investment policy and promotion (versus an average of 3.0 across the Western Balkans 6 countries). In February 2017, the Pristina think tank, Group for Legal and Political Studies, published the report, “ How ‘friendly’ is Kosovo for Foreign Direct Investments: A Policy Review of Gaps from a Regional Market Perspective .”
The government has taken steps to remove barriers to facilitate businesses’ operations and improve related government services. With USAID’s assistance, the Government of Kosovo continued a series of business climate reforms that have contributed to Kosovo’s improved ranking in the World Bank Doing Business Index over the years. Per the amended Law on Support to Small and Medium Enterprises, KIESA supports both domestic and foreign-owned micro, small, and medium enterprises (MSMEs), without any specific eligibility criteria. Such services include voucher programs for training and advisory services, investment facilitation, assistance to women and young business owners, and the provision of business space with complete infrastructure at industrial parks, at minimal cost.
The Kosovo Business Registration Agency (KBRA), part of the Ministry of Industry, Entrepreneurship and Trade, registers all new businesses, business closures, and business modifications. The KBRA website is available in English and can be accessed at arbk.rks-gov.net . As of March 2022, some steps in the registration process can be completed online. Successful registrants will receive a business-registration certificate and a VAT number. New businesses must register employees for tax and pension programs with the Tax Administration under the Ministry of Finance, Labor and Transfers. Business registration generally takes one day for an individual business and up to three days for a limited liability company or a joint stock company. A notary is not required when opening a new business unless the business registration also involves a transfer of real property.
Kosovo does not promote, incentivize, or restrict outward investment. There are no restrictions on investments abroad.
3. Legal Regime
The Law on Public Procurement delegates procurement authority to budgetary units (i.e., ministries, municipalities, and independent agencies) except when the government specifically authorizes the Ministry of Finance, Labor and Transfers’ Central Procurement Agency to procure goods and/or services on its behalf. All tenders are advertised in Albanian and Serbian, and for most important projects, also in English.
The Public Procurement Regulatory Commission (PPRC) oversees and supervises all public procurement and ensures that the Law on Public Procurement is fully implemented. As of March 2022, an e-procurement platform is fully operational; all procurements are handled through it, which has greatly enhanced transparency. The PPRC publishes contract award information on its website ( https://e-prokurimi.rks-gov.net/Home/ClanakItemNew.aspx?id=327 ). The National Audit Office conducts annual procurement audits of all Kosovo ministries, municipal authorities, and agencies that receive funds from the Kosovo consolidated budget. The Procurement Review Body (PRB), an independent administrative body, is responsible for handling appeals related to government procurement. The PRB’s Board, its highest decision-making body, has been unable to process appeals at the highest level, due to board vacancies that have gone unfilled by the Government of Kosovo (GoK) for more than a year.
The Kosovo Assembly is responsible for rule-making and regulatory actions, while government ministries and agencies draft and authorize secondary legislation (i.e., implementing regulations). Municipal assemblies and mayors have regulatory authority at the local level, which rarely extends to the broader issues of investment climate. The Government of Kosovo is working to align all legal, regulatory, and accounting systems in Kosovo with EU standards and international best practices. Publicly listed companies are required to comply with international accounting standards. The government requires Environmental and Social Impact Assessment studies for many projects, especially those with a large environmental or social footprint, such as in the energy and mining sectors.
The Assembly publishes draft laws on its website ( http://www.kuvendikosoves.org/shq/projektligjet-dhe-ligjet/ ). The relevant committees also hold public hearings on proposed laws, including investment laws. The 2016 regulation on the Minimum Standards for Public Consultation Process clarifies the standards, principles, and procedures for consultations during the drafting of legislation. Kosovo has developed an online platform for public comments ( http://konsultimet.rks-gov.net/ ) and publishes all laws and most rules and regulations in the Official Kosovo Gazette ( https://gzk.rks-gov.net/ ) and on the Kosovo Assembly’s website. The Government of Kosovo is currently working to annul, amend, and update all secondary legislation that is outdated or that might otherwise contradict primary legislation. The Government of Kosovo is also working on publishing all secondary legislation in the Official Gazette and relevant ministerial websites. The Law on Public Financial Management and Accountability requires a detailed impact assessment of any budgetary implications before new regulations can be implemented. The Ministry of Finance, Labor and Transfers regularly publishes detailed reports on Kosovo’s public finances and debt obligations. Despite the regulatory requirements, some businesses and business associations complain that regulations are still passed with little substantive discussion or stakeholder input.
Kosovo is represented in CEFTA by the United Nations Mission in Kosovo (UNMIK) and is pursuing EU integration. Through its Stabilization and Association Agreement (SAA) with the EU, Kosovo is working to harmonize its laws and regulations with EU standards. Kosovo is not a member of the WTO.
Kosovo is a signatory to the July 2017 Multi-Annual Action Plan for a Regional Economic Area in the Western Balkans Six and its subsequent Common Regional Market Action Plan . This action plan aims to increase regional integration in the fields of trade, investment policy, labor force mobility, and digitalization.
In 2016, the Kosovo Assembly amended the constitution to enhance the independence of the judiciary in line with EU requirements. Despite significant reforms and improvements in court efficiency, backlog, and sentencing procedures, the judiciary lacks sufficient subject-matter expertise to effectively handle complex economic issues. While complainants have the right to challenge court decisions, regulations, and enforcement actions in the regular court system, as well as the constitutional court, many analysts view Kosovo’s courts as politically influenced by the executive branch, with special treatment or “selective justice” for high-profile, well-connected individuals. While Kosovo court conviction rates generally match regional averages, the rate falls considerably when filtered for high-profile corruption cases.
In January 2022, the Kosovo Assembly unanimously adopted the Law on the Commercial Court, which establishes a special court for handling business disputes fairly, efficiently, and predictably. The Commercial Court aims to improve the business enabling environment by reducing opportunities for corruption and building investor and private sector trust in the judiciary. USAID supported the Kosovo Ministry of Justice in developing the law through an inclusive and participatory process with the judiciary, commercial law experts, practitioners, academics, businesses, and civil society representatives. The Kosovo Judicial Council, with the help of USAID, developed and is implementing an Action Plan for operationalizing the Commercial Court, including by developing regulations on internal organization, case transfer, and recruitment of key personnel.
Significant legislation overhauling the 2004 Criminal Code and the Criminal Procedure Code, amended in 2018, brought Kosovo’s Criminal Law in compliance with the EU Convention on Human Rights, updating definitions and best practices. The Criminal Code contains penalties for tax evasion, bankruptcy, fraud, intellectual property rights offenses, antitrust, securities fraud, money laundering, and corruption. The Special Department of the Special Prosecutor of the Republic of Kosovo handles high-level cases of corruption, organized crime, terrorism, etc.
Kosovo’s civil legal system provides for property and contract enforcement. The Department for Economic Affairs within the Basic Court of Pristina has jurisdiction over economic disputes between both legal and natural persons, including reorganization, bankruptcy, and liquidation of economic persons; disputes regarding impingement of competition; and protection of property rights and intellectual property rights across the entire territory of Kosovo. A similar department within the Court of Appeals holds jurisdiction over “disputes between domestic and foreign economic persons in their commercial affairs” and addresses all appeals coming from the Pristina Basic Court’s Department for Economic Affairs. Commercial cases can take anywhere from six months to several years to resolve. The upcoming Commercial Court, expected to open in 2022, will supplant the responsibilities of the Economic Departments of the Pristina Basic Court and the Court of Appeals in handling commercial cases and the Administrative Department of the Pristina Basic Court in handling commercial-related administrative cases.
The Law on Enforcement Procedures permits claimants to utilize bailiffs licensed by the Ministry of Justice to execute court-ordered judgments. In addition, the Laws on Arbitration and Mediation have helped to address impediments to alternative dispute resolution and to enforcing arbitral awards.
Foreign firms operating in Kosovo are entitled to the same privileges and treatment as local businesses. Kosovo’s commercial laws are available to the public in English, as well as Kosovo’s official languages (Albanian and Serbian) on the Kosovo Assembly’s website ( http://www.kuvendikosoves.org/shq/projektligjet-dhe-ligjet/ ) and on the Official Gazette website ( http://gzk.rks-gov.net/default.aspx ).
Laws of particular relevance include:
The Law on Foreign Investment: provides a set of fundamental rights and guarantees to ensure protection and fair treatment in strict accordance with accepted international standards and practices.
The Law on Business Organizations: regulates the registration and closure of a company and the rights and obligations of shareholders, authorized representatives, and others included in the business management structure.
The Law on Late Payments in Commercial Transactions: discourages late payments and regulates the calculation of interest on late payments.
The Law on Bankruptcy: regulates all matters related to the insolvency of business organizations; the provisions for the protection, liquidation, and distribution of the assets of a bankrupt debtor to its creditors; and the reorganization and discharge of debt for qualified business organizations.
The Law on Prevention of Money Laundering and Combating Terrorist Financing: enabled Kosovo to join Egmont Group, an inter-governmental network of 152 Financial Intelligence Units whose members exchange expertise and financial intelligence to combat money laundering and terrorist financing.
The Credit Guarantee Fund Law: increased access to finance for all MSMEss in Kosovo in an effort to increase employment, boost local production, and improve the trade balance.
The Law on Foreign Trade, and the Law on Anti-Dumping and Countervailing Measures: provides a set of principles and rules on trade, as well as provisions for government interventions in cases of dumping and countervailing measures.
There are two main laws that regulate transactions for competition-related concerns: The Law on Protection of Competition and the Law on Antidumping and Countervailing Measures. The Competition Authority is responsible for implementing the Law on Protection of Competition, but generally lacks the human resources to conduct thorough investigations. The Authority has lacked a decision-making body since May 2021. The Trade Department of the Ministry of Industry, Entrepreneurship and Trade is responsible for the implementation of the Law on Antidumping and Countervailing Measures. In September 2018, Kosovo’s Assembly approved the Law on Safeguard Measures on Imports, which allows the trade minister to impose a provisional safeguard measure for up to 200 days.
Articles seven and eight of the Foreign Investment Law limit expropriation to cases with a clear public interest and protect foreign investments from unreasonable expropriation, guaranteeing due process and timely compensation payment based on fair-market prices. The Law on Expropriation of Immovable Property permits government or municipal expropriation of private property when such action is in the public interest; articles five through thirteen of the Law define expropriation procedures. An eminent domain clause limits legal recourse in cases arising from the expropriation and sale of property through the privatization of state-owned enterprises. There is no history of expropriation other than uncontroversial, undisputed expropriations for work in the public interest, such as roadway construction.
4. Industrial Policies
Kosovo has established a flat corporate income tax of ten percent. To encourage investment, the government can grant certain VAT-related privileges, such as a six-month VAT deferment upon presentation of a bank guarantee for companies importing capital goods. Suppliers may export goods and services without being required to collect VAT from foreign buyers. Suppliers may claim credit for taxes on inputs by offsetting those taxes against gross VAT liabilities or claiming a refund. The government can issue guarantees or jointly finance foreign direct investment projects but has not yet done so. Kosovo does not have legislation that incentivizes businesses owned by underrepresented investors.
The Customs agency has enacted an administrative instruction that reduces the number of documents required for export and import. Only two documents are needed to export (a commercial invoice and a customs export declaration) and only three are now required to import (a commercial invoice, a customs import declaration, and a certificate of origin).
Kosovo has previously offered feed-in tariffs for a quota of renewable energy projects, which has been fulfilled. Kosovo currently does not offer any incentives for renewable energy investments, but it is working on its energy strategy which will define its energy future and subsequent policies.
The Kosovo Customs and Excise Code is compliant with EU and World Customs Organization standards, and addresses topics such as bonded warehouses, inward and outward processing, transit of goods, and free-trade zones. In addition to imported goods, some domestically produced goods from designated industries can be stored in bonded warehouses when these goods meet export criteria. Foreign firms are permitted to import production inputs for the manufacture of export goods without paying taxes or customs duties.
The Customs Code permits the establishment of zones for manufacturing and export purposes, and the Law on Economic Zones regulates their establishment. In 2014, Kosovo established three economic zones in the municipalities of Mitrovica/e, Gjakovë/Djakovica, and Prizren. Currently only the economic zone of Mitrovica/e has completed the legal and administrative procedures for building infrastructure, but the zone remains to be established and operationalized. Three business parks and one business incubator are operational.
Kosovo does not specify performance requirements as a condition for establishing, maintaining, or expanding investments in Kosovo. There are no onerous requirements that would inhibit the mobility of foreign investors or their staff. There are no conditions on permissions to invest, and the government does not mandate local employment. Investment incentives apply uniformly to both domestic and foreign investors, on a case-by-case basis.
Depending on the tender, Kosovo may require foreign IT providers to turn over source code and/or provide access to surveillance. Kosovo does not yet have standard rules on data transmission or storage. The Agency for Information Society is responsible for the storage of data for the central government, and other institutions store their respective data as well.
5. Protection of Property Rights
Property rights and interests are enforced, but weaknesses in the legal system and difficulties related to establishing title to real estate, in part due to competing claims arising from the history of conflict with Serbia, can make enforcement difficult. Minority communitiesin particular, are frequently unable to fully exercise their property rights. The country’s legal and regulatory framework is complex, but generally, Kosovo’s de jure property-related laws are well structured and provide for security and transferability of rights. In 2018, Kosovo adopted a new Law on the Treatment of Constructions without Permit under which all buildings constructed without a permit prior to 2018 are subject to legalization and formalization through registration in the Cadaster and Immovable Property Rights Registry, thereby protecting individual property rights and unlocking this capital for circulation in the formal economy and bringing all real property into the property tax system.
The jurisdictions of government ministries, municipal authorities, and independent agencies often overlap, and the court system is backlogged with property-related cases. Mortgages and liens are available, but the range of financial products is limited. Mortgage agreements must be registered in cadastral records by the Kosovo Cadastral Agency, while pledge agreements must be registered with the pledge registry, which is a centralized registry office in the Business Registration Agency.
The Kosovo Property Comparison and Verification Agency (KPCVA) is responsible for receiving, registering, and resolving property claims on private immovable property, including agricultural and commercial property related to the 1998-1999 conflict and post-conflict period. Decisions of the Kosovo Property Claims Commission within the KPCVA are subject to a right of appeal to the Supreme Court. The KPCVA has received 42,749 total claims, the vast majority of which relate to agricultural property. The KPCVA holds the mandate for implementing decisions of the Housing and Property Claims Commission (HPCC) that are pending enforcement.
Resolution of residential, agricultural, and commercial property claims remains a serious and contentious issue in Kosovo and limits the development of the formal property market needed for more stable economic growth. Many property records were destroyed or removed to Serbia by the Serbian government during the 1998-1999 conflict, which can make determining rightful ownership difficult. The country is in the process of rebuilding the property registry and an EU-facilitated Kosovo-Serbia dialogue includes a component focused on comparing the cadastral records with the records taken by Serbia and resolving any gaps, predicated on Serbia returning the cadastral records to Kosovo. The KPCVA is charged with carrying out the task of property comparison and verification.
In February 2022, the Kosovo Assembly approved the Law on Property Rights of Foreign Citizens in the Republic of Kosovo, which establishes the principle of reciprocity and restricts ownership rights of a foreign national only in cases where the origin country of those foreign nationals restricts ownership rights to Kosovo nationals. In early 2017, Kosovo launched the national strategy on land and property rights reform, which includes a provision to clarify and codify regulations regarding property ownership by foreign and/or non-resident investors. Per Article 40 in the Law on Property and Other Real Rights, a proprietary possessor acquires ownership of immovable property after ten years of uninterrupted and uncontested possession.
Registration of intellectual property rights (IPR) in Kosovo conforms with regional and international practices. The trademark registration process takes approximately nine months, while patent approval takes about 18 months.
Public awareness of the importance of IPR is low. Evidence suggests there is little domestic production of counterfeit goods in Kosovo, but the importation of counterfeit goods, especially apparel, is a concern. The government tracks and reports on seizures of counterfeit goods.
The Ministry of Industry, Entrepreneurship and Trade established the Industrial Property Rights Office (IPO) in 2007, which is tasked with IPR protection. Kosovo’s IPR laws were amended in 2015 to align with EU standards and strengthen legal remedies for right holders. Kosovo’s Law on Patents, Law on Trademarks, Law on Industrial Design, and Law on Geographical Indices, together with the relevant Criminal Code and Customs provisions, provide for strong protection of IPR and comply with related international conventions, even though Kosovo is not party to the associated international organizations. Examples of these conventions include the Paris Convention, the Budapest Treaty, the Madrid Protocol, and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). In 2018, the Assembly approved the Law on Customs Measures for Protection of Intellectual Property Rights to harmonize Kosovo law with EU regulations.
To enhance IPR enforcement and increase interagency coordination, the government has adopted an IPR strategy and established the National Intellectual Property Council and a Task Force Against Piracy. The Council and the Task Force have similar structures and are comprised of the IPO, the Copyright Office, Customs, Kosovo Police Departments for Economic Crime and Corruption and Cyber Crimes, the Market Inspectorate, and the Ministry of Justice. The Council also includes the Kosovo Prosecutorial Council, judicial courts, and other government and non-governmental institutions.
Kosovo is not included in the U.S. Trade Representative’s (USTR’s) Special 301 Report or Notorious Markets List. Kosovo is not a member of the World Intellectual Property Organization (WIPO), and there is no WIPO country profile for Kosovo.
6. Financial Sector
Kosovo has an open-market economy, and the market determines interest rates. Individual banks conduct risk analysis and determine credit allocation. Foreign and domestic investors can get credit on the local market. Access to credit for the private sector and financial products are limited but gradually improving.
The country generally has a positive attitude towards foreign portfolio investment. Kosovo does not have a stock exchange. The regulatory system conforms with EU directives and international standards. There are no restrictions beyond normal regulatory requirements related to capital sourcing, fit, and properness of the investors. The Central Bank of Kosovo (CBK) has taken all required measures to improve policies for the free flow of financial resources. Requirements under the SAA with the EU oblige the free flow of capital. The government respects the IMF’s Article VIII conditions on the flow of capital.
In early 2006, Kosovo created a credit registry managed by the Central Bank of Kosovo. It serves as a database for customers’ credit history and aims to help commercial banks and non-banking institutions assess customers’ credit worthiness. Banks and non-banking institutions are required to report to the Credit Registry of Kosovo, but only authorized banking and non-banking institution personnel can access it. In addition to the Credit Registry of Kosovo, the Ministry of Industry, Entrepreneurship and Trade offers a Pledge Registry Sector, a mechanism that records data for collateral pledges.
Kosovo has 11 commercial banks (of which nine are foreign) and 30 micro-finance institutions (of which 13 are foreign). The official currency of Kosovo is the Euro, although the country is not a member of the Eurozone. In the absence of an independent monetary policy, prices are highly responsive to market trends in the larger Eurozone.
Kosovo’s private banking sector remains stable, well capitalized, and profitable despite the COVID-19 pandemic’s negative economic shock to the economy. Difficult economic conditions, weak contract enforcement, and a risk-averse posture have traditionally limited banks’ lending activities. However, financial services and bank lending have steadily improved over the years, albeit from a low baseline. In March 2022, the rate of non-performing loans was 2.3 percent, which stands slightly lower than the pre-pandemic February 2020 rate of 2.5 percent. The concentration of the three largest banks’ assets have decreased slightly to 53 percent in March 2022 compared to 56.2 percent in March 2021. The assets of the entire banking sector total 5.9 billion euros; foreign-owned banks have 85.6 percent of the market share. Relatively little lending is directed toward long-term investment activities, although this trend has been changing slowly. Interest rates have dropped significantly in the past decade, from an average of about 12.7 percent in 2012 to an average of 5.7 percent in March 2022. Slower lending is notable in the northern part of Kosovo due to a weak judiciary, informal business activities, and fewer qualified borrowers.
The Central Bank of Kosovo (CBK) is an independent government body responsible for fostering the development of competitive, sound, and transparent practices in the banking and financial sectors. It supervises and regulates Kosovo’s banking sector, insurance industry, pension funds, and micro-finance institutions. The CBK also performs other standard central bank tasks, including cash management, transfers, clearing, management of funds deposited by the Ministry of Finance, Labor and Transfers and other public institutions, collection of financial data, and management of a credit register. Although the financial sector remains stable, a prolonged period without a governing board and allegations of mismanagement have caused concern over CBK’s institutional development.
Foreign banks and branches can establish operations in the country. They are subject to the same licensing requirements and regulations as local banks. The country has not lost any correspondent banking relationships in the past three years and no such relationship is currently in jeopardy. There are no restrictions on foreigners opening bank accounts; they can do so upon submission of valid identification documentation.
Kosovo is a signatory country to the United States’ Foreign Account Tax Compliance Act (FATCA), aimed at addressing tax evasion by U.S. citizens or permanent residents with foreign bank accounts. For more information, visit the FATCA website: https://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA .
Kosovo does not have any sovereign wealth funds.
7. State-Owned Enterprises
Kosovo has 63 state-owned enterprises (SOEs), 44 of which are municipality managed. These enterprises are typically utilities, such as water treatment and supply, waste management, energy generation and transmission, but also include SOEs involved in telecommunications, mining, and transportation. SOEs are generally governed by government-appointed boards. The Ministry of Economy monitors SOE operations with a light hand.
Private companies can compete with SOEs in terms of market share and other incentives in relevant sectors. State-owned enterprises are subject to the same tax laws as private companies. There are no state-owned banks, development banks, or sovereign funds in Kosovo.
The majority of Kosovo’s SOEs are either regulated or operate in the free market but incur losses and depend on government subsidies for their survival. SOEs do not receive a larger percentage of government contracts in sectors that are open to foreign competition. However, the government interprets procurement law in a way that considers SOEs to be public authorities and prevents contracting authorities from procuring goods from other sources if SOEs offer such goods and/or services. SOEs purchase goods and services from the private sector, including international firms.
The privatization process has essentially slowed to a halt. Kosovo had been progressively privatizing SOE assets since the early 2000s, but there are few assets left to privatize, and the current governing coalition has traditionally opposed the privatization process. The Privatization Agency of Kosovo (PAK), an independent agency, is still responsible for the disposition of Kosovo’s SOE assets. The Government of Kosovo is currently working on a concept note for the establishment of a Sovereign Fund. As currently written, the Kosovo Government plans to transfer some of the most valuable assets currently under PAK authority to the Sovereign Fund. For those assets put on sale, the privatization process is open to foreign investors. PAK provides a live feed of bidding day procedures on its website ( http://www.pak-ks.org/ ). The website also includes bidding information, the results of sales, and other information.
8. Responsible Business Conduct
Spurred in large part by the growing number of foreign investors, the topic of responsible business conduct (RBC) has begun to surface in public discussions. The American Chamber of Commerce, Kosovo Corporate Social Responsibility (CSR) Network, and other entities engaged in RBC are able to advocate and monitor freely. The government does not actively promote or encourage RBC and does not factor RBC principles into procurement decisions. In most cases, tenders are awarded to the economic operator with the lowest price offer and highest technical score.
There have not been any major cases of negative corporate impact on human rights in Kosovo. There are occasional complaints and media reports that the health of citizens in the area near the power plant in Obiliq/Obilič is endangered due to high levels of lignite coal pollution. As a result of those concerns, the Kosovo Assembly approved a 2016 Law on Environmentally Endangered Zone of Obiliq/Obilič and its Surroundings, which mandates a return of 20 percent of royalties collected in the area to the municipality. However, many provisions of that law remain unimplemented. There have been reports and allegations of child and forced labor in Kosovo, but they are relatively uncommon and typically engaged in the informal economy or family-run agricultural businesses.
Companies are not required to make a public disclosure of policies, procedures, or practices unless registered as a joint stock company, in which case there are added disclosure responsibilities related to financial reporting and auditing.
Implementation of the Law on Consumer Protection is limited. The government has not undertaken any significant action to raise awareness of consumer rights. The government does not promote the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. Kosovo does not participate in the Extractive Industries Transparency Initiative (EITI). There are no domestic transparency measures requiring the disclosure of payments made to governments for projects related to the commercial development of oil, natural gas, or minerals. Kosovo is not a signatory of The Montreux Document on Private Military and Security Companies, nor a participant in the International Code of Conduct for Private Security Service Providers’ Association.
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 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 U.S. Embassy in Pristina is unaware of any government activity to encourage private companies to establish internal codes of conduct, or off 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 and construction 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 Foreign Corrupt Practices Act (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.
Yll Buleshkaj Director, Kosovo Anti-Corruption Agency
Nazim Gafurri Street, No. 31, Pristina, Kosovo
+383 38 518 933
Rr. “MIGJENI”, nr. 21, Pristina, Kosovo
+383 38 223 782
Executive Director, Kosovo Democratic Institute/Transparency International
Bajram Kelmendi Street, n/45, Pristina, Kosovo
+381 38 248 038
Executive Director Balkan Investigative Reporting Network Kosovo, and Editor of Kallxo.com
Menza e studenteve, kati i pare, 10000 Pristina, Kosovo
+383 38 22 44 98
10. Political and Security Environment
In recent history, the political environment has been characterized by short electoral cycles and prolonged periods of caretaker governments. Despite the political instability, there have not been substantial legislative and regulative changes, especially regarding investments and business environment. There have been no reports of any damage to commercial projects or installations.
Kosovo held national assembly elections on February 14, 2021, after the Constitutional Court ruled in December 2020 that a convicted Member of Parliament’s (MP) decisive 61st vote to form the government was not valid. For the first time in the last 20 years, the elections produced an overwhelmingly clear victor, the Levizja Vetevendosje (“Self-Determination Movement”) led by Albin Kurti, which formed a government in March 2021 with the help of only a few minority MPs. This was unusual as Kosovo’s proportional electoral system typically favors coalitions and partnerships. The new government has restored perceptions of political stability and is likely to provide a break from Kosovo’s short electoral cycles.
The current administration’s electoral victory centered mainly on anti-corruption promises. While the administration has produced some results in fighting corruption, balancing the budget, and reforming the public administration, it has been relatively slow in introducing new laws and regulations as well as drafting strategies that would guide economic policymaking.
Kosovo is not a member of the United Nations and regional neighbors Serbia and Bosnia and Herzegovina are among the countries that do not recognize its statehood. In November 2018, Kosovo imposed a 100 percent tariff on all goods from Serbia and Bosnia and Herzegovina but in April 2020 dropped the 100 percent tariff in favor of “reciprocal measures.” The previous administration dropped these “reciprocal measures” temporarily in June 2020 to give way for negotiations on “economic normalization” with Serbia. Despite a White House-brokered set of commitments signed on September 4, 2020, in Washington, DC, by Kosovo’s then-Prime Minister Avdullah Hoti and Serbian President Aleksandar Vucic, there are numerous issues remaining that might lead to trade and investment barriers between the two countries. In addition, the lack of recognition also exposes Kosovo to subtle technical difficulties in carrying on day-to-day business activities. For example, Kosovo is not listed in the ISO 3166 list of countries, which results in numerous companies and services not listing Kosovo in the drop-down menu of countries and forces businesses in Kosovo to either register and divert their business through a third country or renders them unable to use such services. Due to Kosovo’s lack of Country Code Top-Level Domain (ccTLD), it is more difficult to track cyberattacks.
11. Labor Policies and Practices
According to the Kosovo Statistical Agency, almost two thirds of Kosovo’s population of 1.8 million is of working age (15-64). The official unemployment rate is 25.8 percent. Youth unemployment is estimated at 48.6 percent. There are no reliable statistics on Kosovo’s informal economy, but a 2017 EU-commissioned report estimated the informal and black market at 32 percent of GDP. Informal businesses dominate in the agriculture, construction, and retail sectors. Because of pervasive informality and the slow pace of courts, informal and verbal agreements often carry more significance than formal agreements and contracts. Private-sector employers make a practice of not providing contracts to their employees and paying them in cash. In the public sector, employers sometime hire employees as contract workers and enroll them in the regular payroll when the budget for salaries becomes available.
Kosovo’s Labor Law requires employers to observe employee protections, including a 40-hour work week, payment of overtime, adherence to occupational health and safety standards, respect for annual leave benefits, and up to a year of maternity leave (six months of employer paid leave at a reduced rate, followed by three months of government paid leave and three months of unpaid leave). The Labor Law distinguishes between layoffs and firings, and mandates severance pay only for laid off workers (when at least 10 percent of employees are dismissed collectively).
The law also establishes a monthly minimum wage, which the government set in 2011 at €130 ($146) for employees under 35 and €170 ($191) for those over 35 years of age. Kosovo has no unemployment insurance or any other safety net programs for workers laid off for economic reasons. It is estimated that about one third of employees are employed in the public sector and SOEs. Although the country’s average monthly salary amounts to nearly €416 ($457) in take-home pay, there are stark differences between the private sector average of €342 ($376), the public administration average of €552 ($607), and the SOE average of €680 ($748).
The Labor Law has no nationality requirement and is not waived for investment purposes. There are no additional or different labor laws for special economic zones or free zones.
Labor unions are independent by law, but in practice, many of them are closely associated with political parties. The government, labor unions, and private sector representatives signed a collective bargaining agreement in 2014, which has been partially implemented. Kosovo’s Statistical Agency and the Ministry of Economy do not collect specific data on implementation. Public-sector employees – including doctors, teachers, and judges – sporadically go on strike to demand implementation of the entire agreement, better working conditions, or higher wages. In January 2019, education and health workers went on a month-long strike demanding higher wages, only stopping the strike after the Kosovo Assembly approve the Law on Wages, which granted some of their demands. Strikes and protests in the private sector are almost nonexistent. Local courts formally adjudicate labor disputes.
The Ministry of Finance, Labor, and Transfers established a compliance office with the authority to inspect employer adherence to labor laws. The International Labor Organization office in the country is project-focused and does not serve as a government advisor on labor legislation or international labor standards. The government plans to reform inspectorates, labor inspectorate included, and has already increased the labor inspectorate’s number of inspectors from 38 to 90. The Inspectorate issues fines and penalties depending on the extent of the violation of labor legislation. The Labor Inspectorate and the judicial system investigate and prosecute labor practice violations. Municipal social work centers at the Ministry of Finance, Labor, and Transfers investigate and report on child labor issues, while the Labor Inspectorate inspects violations of child labor practices for children aged 15-18 years.
Kosovo’s education system has been criticized for not sufficiently linking its curriculum to the needs of Kosovo’s business community. Kosovo’s large, young labor force often remains idle due to mismatches between applicant skills and employer needs.
14. Contact for More Information
Dren Pozhegu Senior Economic Advisor
U.S. Embassy Pristina
Rr. 4 Korriku Nr.25
+383 38 5959 3183