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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

3. Legal Regime

Transparency of the Regulatory System

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’s Central Procurement Agency to procure goods and/or services on its behalf.  All tenders are advertised in Albanian and Serbian, and for the 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 2019, 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 the various Kosovo ministries, municipal authorities, and agencies that receive funds from the Kosovo consolidated budget.  The Procurement Review Body, an independent administrative body, is responsible for hearing appeals related to government procurement.

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.  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 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’s Better Regulation Strategy 2014-2020 is a government initiative to implement a smart regulatory system with sound implementation and effective communication.  Kosovo has developed an online platform for public comments (http://konsultimet.rks-gov.net/ ) and publishes rules, regulations, and laws in the official Kosovo Gazette (https://gzk.rks-gov.net/ ) and on the Kosovo Assembly’s website.  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 regularly publishes detailed reports on Kosovo’s public finances and debt obligations.

In spite of the strategy and regulatory requirements, some businesses and business associations complain that regulations are passed with little substantive discussion or stakeholder input.

International Regulatory Considerations

Kosovo is a CEFTA member 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 .  This action plan aims to increase regional integration in the fields of trade, investment policy, labor force mobility, and digitalization.

Legal System and Judicial Independence

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, Kosovo’s courts are viewed 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.

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 offenses.  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 Matters 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 Matters.  Department for Economic Matters Commercial cases can take anywhere from six months to three years to resolve.

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.

Laws and Regulations on Foreign Direct Investment

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:

  • Law on Foreign Investment: provides  a set of fundamental rights and guarantees to ensure protection and fair treatment treated in strict accordance with the accepted international standards and practices.
  • 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.
  • Law on Strategic Investments: authorizes fast-track negotiations between the Government and private companies in targeted sectors and grants the government the option of ceding state-owned real estate for the purpose of developing and executing strategic investment projects.
  • 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 micro- and SMEs in Kosovo in an effort to increase employment, boost local production, and improve the trade balance.

Competition and Anti-Trust Laws

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 Trade Department of the Ministry of Trade and Industry is responsible for the implementation of the Law on Antidumping and Countervailing Measures.  In September 2018, Kosovo Assembly approved the Law on Safeguard Measures on Imports, which allows the Trade Minister to impose a provisional safeguard measure up to 200 days.

Expropriation and Compensation

Articles 7 and 8 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 expropriation of private property by the government or municipalities when such action is in the public interest.  Articles 5 through 13 of the Law on Expropriation of Immovable Property 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 outside of uncontroversial, undisputed expropriation for works in the public interest, such as roadway construction.

Dispute Settlement

ICSID Convention and New York Convention

In 2009, Kosovo became a party to the International Centre for Settlement of Investment Disputes (ICSID) Convention and has incorporated the Convention into national law.  There is no specific legislation providing for the enforcement of the ICSID Convention, but in accordance with the Law on Foreign Investments, investors may contractually agree to arbitration or other alternative dispute resolution mechanisms.  Kosovo is not a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Law.

Investor-State Dispute Settlement

Kosovo’s courts recognize international arbitration awards.  There is no history of extrajudicial action against foreign investors.

The Commercial Department of Pristina Basic Court has jurisdiction over investment disputes involving SOEs.  There are no records available detailing the frequency with which domestic courts have ruled in SOEs’ favor.

Over the past ten years, three foreign investors have brought publicly-known claims against Kosovo.  Kosovo’s state-owned telecom company lost two cases before the London Court of International Arbitration (LCIA), one of which involved a foreign investor.  In 2013, the LCIA determined Post & Telecom Kosovo owed an Israeli company USD 9.8 million for breach of contract.  In July 2016, the International Court of Arbitration in Paris awarded an Austrian printing company USD 5.6 million for Kosovo’s illegal termination of a contract to manufacture passports.  In June 2015, a German company brought a case before ICSID related to the failed privatization of Kosovo’s telecom company; the arbitral tribunal ruled that it had no jurisdiction over the dispute.

International Commercial Arbitration and Foreign Courts

The Foreign Investment Law stipulates that investors may utilize the following alternative dispute resolution mechanisms:

  1. The ICSID Convention if both the foreign investor’s country of citizenship and Kosovo are parties to said convention at the time of the request for arbitration;
  2. The ICSID Additional Facility Rules if the jurisdictional requirements for personal immunities per Article 25 of the ICSID Convention are not fulfilled at the time of the request for arbitration;
  3. The United Nations Commission on International Trade Law (UNCITRAL) Rules. In this case, the appointing authority would be the Secretary General of ICSID; or
  4. The International Chamber of Commerce Rules.

Arbitration services are available at arbitral tribunals within the Kosovo Chamber of Commerce and American Chamber of Commerce in Kosovo.  Kosovo’s Arbitration Rules are based on model rules derived from the 2010 United Nations Commission on International Trade Law (UNCITRAL) Model Rules for Commercial Arbitration and are consistent with international best practices.  The Law on Foreign Investment favors the use of arbitration.  To utilize this option, the law requires that the disputed agreement/contract include an arbitration clause.

Foreign arbitral awards and judgments are enforceable in Kosovo.   There has been no instance of voluntary compliance by the Government of Kosovo or other public entities with arbitral awards; all known cases have involved some form of judicial process.

Additionally, in accordance with the Law on Mediation, Kosovo courts recognize mediation centers and one is operated by the American Chamber of Commerce in Kosovo.  The Ministry of Justice has adopted the rules leading to the creation of mediation services and has trained and certified a number of mediators.  For more information, visit http://www.kosovo-arbitration.com .

Bankruptcy Regulations

The Law on Bankruptcy regulates bankruptcy and insolvency procedures and specifies 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.  Under the law, foreign creditors have the same rights as domestic investors and creditors when launching and participating in bankruptcy proceedings.

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’ creditworthiness.  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 Trade and Industry offers a Pledge Registry Sector, a mechanism that records data for collateral pledges.

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

11. Labor Policies and Practices

According to the Kosovo Statistical Agency, almost two thirds of Kosovo’s 1.8 million population is of working age (15-64).  The official unemployment rate is 25.7 percent.  Youth unemployment is estimated at 49 percent.  There are no reliable statistics on Kosovo’s informal economy, but an EU-commissioned report estimated the informal and black market at 32 percent of GDP.  Informal businesses dominate in the agriculture, construction, and retail sectors.  Private-sector employers make a practice of not providing contracts to their employees and pay 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 payments 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  (USD 146) for employees under 35 and €170  (USD 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 administration and SOEs.  Although the country’s average salary amounts to nearly €498  take home a month (USD 540), there are stark differences between private sector average of €364  (USD 395), public administration average of €509  ( USD 550) and SOE average of €620  ( USD 670).

The Labor Law has no nationality requirement.  Labor laws are 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.  A collective bargaining agreement between the government, labor unions, and private sector representatives was signed in 2014 and has been partially implemented.  Kosovo’s Statistical Agency and the Ministry of Economy, Employment, Trade, Industry, Entrepreneurship, and Strategic Investments (MEETIESI) 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.

MEETIESI has 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 Labor Inspectorate suffers from inadequate staffing and a limited budget; with 40 inspectors conducting inspections in 38 municipalities.  The government had planned to reform and increase the number of inspectors to 90, but the March 2020 vote of no confidence stalled implementation.  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 MEETIESI 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.

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