Trade regime

Kosovo has a liberal trade regime and derives three major benefits from trade liberalisation, namely improved export possibilities, a better investment environment, and stable relations with its neighbours.

Committed to establishing principals for stable development of a pure market economy, since a very early stage of development, Kosovo’s government has been working towards establishing the free movement of goods and services throughout the country’s borders. As a result, Kosovo currently enjoys a free trade within Central European Free Trade Agreement – CEFTA, enabling its producers to access the regional market comprising of 28 million consumers, free of any customs duties.

In addition, Kosovo benefits from non-reciprocal, customs-free access to the EU market based on the EU Autonomous Trade Preference (ATP) Regime (EU Council Resolution 2007/2000) as well as from cutoms-free access to the US market. Quantitative and qualitative restrictions remain in force only for a very limited number of goods.

Fig.6 and 7

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Kosovo is still an import based economy. Imports have been increasing steadily in recent years (as the figure shows) reaching some 1.9 billion Euro at the end of 2008. Due to its geographical proximity, the main importing countries in Kosovo are CEFTA-members followed by the EU-countries. Even though local production is increasing steadily, Kosovo is still forced to import goods and raw materials that are not offered by the local market. The main imports of commodity goods range therefore from prepared foodstuff, beverages and tobacco, and minerals to machinery and articles of stone.

Fig.8-11

Recognising the opportunities that the local market is offering, and benefiting from various cross-sector incentives introduced by the Government, the local production has been growing exponentially in recent years. Not only is the local demand continuously relying on the local production but furthermore Kosovo is increasingly exporting to its main trade partners, EU-countries and CEFTA-members. At the end of 2008, exports reached 195.9 million Euro, comprising mainly of base metals and leather that Kosovo has in sufficient quantities as well as vegetables and foodstuff. Given that the country has a very favourable business climate, a modern legal framework and cheap work force, and taking into consideration that there is still immense opportunity for local producers to fulfil market demand and also approach the regional market, local production as well as exports are expected to increase further in the future.

Foreign Direct Investments

Taking into consideration the favourable business climate, stable macroeconomic environment and the excellent opportunities across different business sectors, Kosovo is increasingly becoming a very attractive place for doing business. As result, the interest of foreign investors has been increasing steadily during the past years and together with it also the inflow of FDI. Kosovo has so far attracted over 1 billion Euro of FDI. Apart from investment pioneers such as the Raiffeisen Bank and Procredit, which entered the Kosovar market at the beginning of the transition phase, there are many other foreign companies engaged in a wide range of business sectors. According to the Business Registry data there are over 2,000 companies of foreign and mixed ownership that have already used the opportunity to invest in Kosovo. The large amount of foreign companies operating in Kosovo is a living proof of the opportunities and benefits that the country offers, and also represents a base of quality products and a sufficient service-providing community.

Tab.4 and Fig4-5

 

Some foreign companies in Kosovo

Some foreign companies in Kosovo

Wood processing

Forests and related surfaces make up around one third of the total territory of Kosovo and represent a resource of special importance for Kosovo’s economy. With the annual value of wooden products and other benefits arising from forests reaching EUR 50 – 75 million Euro, this sector even assures a livelihood for 10 percent of the Kosovar population.

Due to the sufficient availability of inputs, Kosovo offers great investment possibilities in every single wood processing cycle. The annual allowable amount of felling is currently slightly below 1 million m³ with Beech and Oak being the main species. Potentials for foreign investors range from door and window to different furniture production. There is currently a large pool of companies in Kosovo that could be your cooperation or outsourcing partners.

A large amount of traditionally gained experience, great knowledge in wood processing, and a cost effective labour force make the Kosovar wood industry particularly well suited for the manufacturing of hand made luxury products. In addition, most sawmills in Kosovo only saw logs into rough, mixed grade lumber, and do not appear to recognize, or have not yet explored, the potential value of waste products from lumber production, i.e. sawdust and wood chips.

Taking into consideration all these benefits, Kosovo’s wood processing industry has experienced significant developments during the past eight years. Due to better organisation and sufficient service-providing clusters, Kosovar producers have been able to increase the quality and product range, thereby allowing expansion into foreign markets. Currently, Kosovar wood processors supply furniture both for the domestic and trade markets (for example hotels) to companies in Germany, the Netherlands, Switzerland and other neighbouring countries.

Through the efforts and engagement of the members of the rich institutional environment of the wood industry, Kosovo is offering various incentives that aim to further promote and facilitate primary and secondary wood production. The Kosovar Government has recently approved a zero tariff rate for the imports of machinery and capital goods related to this sector, while further negotiations for the exception of wood raw material from VAT and Customs policy are currently taking place.

Information Technology and Telecommunications

The IT sector in Kosovo, including Internet Service Providers, has seen a remarkable development since the end of the war in 1999. From being inexistent 10 years ago, Kosovar companies in the IT sector offer today high quality services and the latest technologies to their customers both locally as well as to foreign companies who want to outsource their software development or support centres.

Kosovo has the youngest population in Europe. It is both skilled and multilingual, with English being only just short of an official language due to international administration in the last nine years. In addition, many Kosovars who have studied abroad are now returning to Kosovo, bringing with them skills and know-how. Today, public and private education institutions in the IT field, supported by companies such as CISCO or Microsoft, provide education to thousands of young Kosovars while the demand for this form of training is still rising.

Be it the outsourcing of software development, data management or establishment of call and support centres , Kosovar companies can offer you high quality services at low costs.

Fig.3

Even though Kosovo has one of the lowest internet user rates in the region, the demand is much higher than the offer, providing great opportunities for foreign investors.

Kosovo has two mobile telephony operators, with over 200 million Euro investment by the Slovenian Telecom for one of them. The state-owned mobile telephony operator VALA with over 850,000 users will be available for privatization soon.

In addition, great opportunities for foreign investors are also available in fixed telephony, VoIP, cable TV, etc.

Construction

During past years the construction industry became one of the most important sectors contributing to Kosovo’s economic growth. Financed mainly through foreign aid, the construction sector in Kosovo has so far utilised several hundred million Euro that were primarily used for the construction of new homes, or for the rehabilitation and development of the road infrastructure respectively.

The construction industry remains a sector with highly promising economic potential for Kosovo. Roughly estimated, in order to meet the existing market demand, in the next few years Kosovo will need some 60,000 new apartments, including the associated infrastructure, such as roads, kindergartens, schools, leisure facilities, restaurants etc.

A further factor which is helping to boost the development of this sector is the demand for road and highway construction. The Government of Kosovo has set itself a goal to connect the country in three main directions with the most important international road corridors in Macedonia, Albania and Serbia. The construction of a highway, which will connect the northern and central parts of Kosovo with Skopje (FYROM), is a mid-term goal of the Government. A much more important project represents the building of a highway between Merdare-Kukës-Durrës, which will connect Kosovo with the sea port of Durrës, Albania. This highway will become a part of the Trans European Corridor X that will connect the Adriatic Sea with the Western Europe.

Improvements of the road infrastructure and the construction of the highway to Albania will be financed through foreign investments. In order to legally enable the Private-Public-Partnerships, the Government in Kosovo has adopted the law on concessions in June 2009 (Law Nr. 2009/03-L-090). Additionally, the law on expropriation was also adopted in March 2009.

Textiles

With over 200 years of tradition, textiles were the second largest industrial sector in Kosovo, after mining. In the past, products from Kosovar manufacturers targeted the local market, as well as other markets throughout the former Yugoslavia, Western and Eastern Europe and the United States. At its peak around 1990, each of the 15 SOEs engaged in textile production employed more than 1,000 people and sales totalled some 35 million Euro.

Recent developments in the region have frozen the primary trading links of the textile industry, causing lower production rates and resulting in a lack of competitiveness with foreign products. As a result, a major share of former SOE workers has become redundant. A minor part has, however, established private textile companies. Currently there are some 451 private companies engaged in textile production, out of which 90 percent are final product manufacturers. Although the textile industry has experienced a significant recovery during the past years, the majority of businesses are still small and take the form of micro enterprises. Consequently, they cater solely for the Kosovo market and are primarily geared towards a niche market.

Analysis indicates that some 55 to 65 million Euro in exports could be reached, assuming that trading links with former partners can be re-established. There is considerable scope in this sector for investors to recreate a vertically integrated manufacturing cluster so that Kosovo would once again produce finished clothing from thread and cloth made in the region.

In particular, Kosovo offers three major benefits for investors wishing to revamp one of the existing SOEs or found a new textile manufacturing company. These are:

  • A cheap, well skilled and experienced work force
  • A solid base of technology that can be acquired through the ongoing privatization process
  • Numerous subcontracting and outsourcing possibilities

With the existing know-how, cheap labour force and other comparative advantages that the country offers, including the friendly business and investment environment, the textile industry in Kosovo has therefore the potential to become highly competitive internationally.

Automotive components industry

The origins of the automotive components industry in Kosovo date back to the 1960s, when the first large scale auto components manufacturing companies were founded. Although these manufacturing units were primarily established to supply different parts for the production of Yugoslav vehicles, they very quickly penetrated foreign markets and cooperated with well-known European and American automotive component manufacturers. The two best known flagships of automotive component industrialization in Kosovo were the Ramiz Sadiku, which produced primarily car seats and small vehicle parts, and the Shock Absorber Factory Prishtina, which produced shock absorbers for various well-known brands such as British Armstrong, German Susta as well as French Peugeot among others. Between 1989 and 1990 the Shock Absorber Factory produced 3.3 million units each year and employed over 1,500 workers.

With the loss of foreign markets as a result of political circumstances during the 1990s, the Kosovar component manufacturers were faced with immense financial problems and consequently many of them had to rethink their business philosophy in order to survive in the global market. Although the current output of these enterprises is still considered to be low, re-established links with the traditional partners bode well for a prospective development of this sector. The existing technology, large capacities and sufficient knowledge allow the automotive component industry to produce and support any OEM [Original Equipment Manufacturer] with parts at a competitive cost.

Furthermore, the trend of shifting production to Central and Eastern Europe makes the Kosovar automotive component industry even more interesting for investors or partners wishing to benefit from increasing opportunities in the region.