Kosovo: Economy

Kosovo's economy has shown significant progress since the conflict of the 1990s; it is, however, still dependent on the international community and the diaspora for financial and technical assistance. Remittances from the diaspora, located mainly in Germany, Switzerland, and the Nordic countries, account for about 13%-15% of GDP and donor-financed activities and aid for another 7.5% of GDP.

Kosovo's citizens are the poorest in Europe, with an average annual per capita income of approximately $2,750. With roughly 45% of the population unemployed, migration and black market activity are key concerns. Most of Kosovo's population lives in rural towns outside of the capital, Pristina. Inefficient, near-subsistence farming is common, the result of small plots, limited mechanization, and lack of technical expertise.

With international assistance, the privatization of Kosovo’s socially-owned enterprises (SOEs) has generated around U.S. $515 million since 2004. According to the Privatization Agency of Kosovo, more than 9,000 local and foreign investors have expressed interest in the privatization process. Kosovo's two largest exporters are privatized companies: Ferronikeli (nickel) and M & Sillosi LLC (flour). Technical assistance to the Kosovo Energy Corporation (KEK) has helped improve procedures for billings and collections, increased revenues, strengthened internal accounting procedures and controls, and rationalized budgeting and investment planning. The installation of bulk meters at the sub-station level is facilitating greater accountability for collection performance at the district level. The U.S. Government is cooperating with the Ministry for Energy and Mines and the World Bank to prepare a commercial tender for a new generation and mining project, to include construction of a new power plant ("New Kosovo", formerly titled "Kosovo C") and the development of a coal mine for the New Kosovo plant and the two existing power plants. Privatization of the distribution and supply divisions of KEK is also planned.

Economic growth is largely driven by the private sector, mostly small-scale retail businesses. The official currency of Kosovo is the Euro, but the Serbian dinar is also used in northern Kosovo and other areas where ethnic Serbs predominate. Kosovo's use of the Euro has helped keep inflation low. Kosovo has so far maintained a budget surplus as a result of efficient value added tax (VAT) collection at the borders and inefficient budget execution. In order to help integrate Kosovo into regional economic structures, UNMIK signed (on behalf of Kosovo) its accession to the Central Europe Free Trade Area (CEFTA) in 2006. However, Serbia and Bosnia have refused to recognize Kosovo’s customs stamp or extend reduced tariff privileges for Kosovo products under CEFTA.

In December 2008, Kosovo was designated as a beneficiary country under the Generalized System of Preferences (GSP) program. Under this program, a wide range of products Kosovo might seek to export are eligible for duty-free entry to the United States. Current Kosovo exports that are eligible for GSP benefits include wood products, charcoal, and dried fruits. Other main exports include mineral products, base metals, leather products, machinery, and appliances. Kosovo’s main export partners are Italy, Albania, Macedonia, and Greece. Imports include live animals and animal products, fruits and vegetables and related products, minerals, base materials, machinery, appliances and electrical equipment, textiles and related products, wood and wood products, stone, ceramic and glass products, and chemical products. The country’s main import partners are the EU, Macedonia, Serbia, Turkey, and Albania. On July 11, 2008, representatives from 37 countries and 16 international organizations met in Brussels for a donors conference, pledging approximately $1.9 billion (including $400 million from the United States), in support of the socio-economic reform priorities Kosovo has expressed through its Medium-Term Expenditure Framework for 2008-11.

On June 29, 2009, Kosovo formally joined the global financial system when then-President Sejdiu and Prime Minister Thaci signed the articles of agreement for entry into the World Bank and International Monetary Fund (IMF). A total of 109 states supported Kosovo’s membership. Since that time Kosovo has begun servicing its share of the former Yugoslavia’s World Bank and IMF debt.

Trade and Industry
Kosovo has been laying the foundations of a market-oriented economy for the past 10 years but is still struggling to develop viable and productive domestic industries. Kosovo has one of the lowest export/import rates in the region. In 2009, Kosovo imported $2.3 billion in goods and services and exported only $238 million, resulting in a trade deficit of approximately 42% of Kosovo's GDP. This deficit is largely financed through foreign assistance and remittances from Kosovo's diaspora. Kosovo's leading industries are mining, energy, and telecommunications.

Agriculture
Agricultural land comprises 53% of Kosovo's total land area and forests 41%. According to data from the Food and Agriculture Organization, 741,316 acres of land are under cultivation and 444,789 acres are upland pasture. The majority of agricultural land is privately owned (80%), providing subsistence farming for individual households. Although Kosovo's agricultural sector is generally characterized by small farms, low productivity, and the absence of advisory services, agriculture contributes around 19% of Kosovo's overall GDP. Agriculture is the largest employment sector in Kosovo, providing jobs for approximately 16.5% of the population, primarily on an informal basis. The agricultural sector also accounts for 16% of total export value and remains an important creator of national wealth, although Kosovo is still an importer of many agricultural products, which accounted for 24.4% of overall imports ($537.5 million) in 2007. Forestry in Kosovo is minimal; wood-processing and wood products (flooring and furniture) are industry contributors, although not yet in significant numbers.

Sources:
CIA World Factbook (September 2009)
U.S. Dept. of State Country Background Notes (April 2011)