Moderators: ·
Dr. Franz-Lothar Altmann and Dr. Roland Schoenfeld
Rapporteurs: ·
Dr. Dieter Falk and Martin Knapp

Introduction

The group experienced a very constructive dialogue and reached a great degree of consensus on many issues.

It was acknowledged that most economic problems were of common nature and not due to ethnic discrimination, such as the high unemployment rate, the lack of reliable statistics or the so-called "parallel system" in the economy. The latter means divided markets for many goods and services such as banking, postal services, telecommunications, and the use of two currencies (Euro and Dinar). Serbian participants, however, defended the disputed need of the existence of this system, presenting understandable reasons why it is necessary: In particular they argued that without the "parallel system", their separated economy would break down completely.

1. Infrastructure

During the discussion the most positive results have been identified in the field of infrastructure. Much has been done since 1999, esp. for the construction and improvement of roads and water supplies. However, Serbian participants complained that the North has benefited less from reconstruction measures in infrastructure than the South, whereas Albanian members claimed that a West-East-corridor be prepared from Durres via Prishtina to Nis.

Already in the foreseeable future, immediate donor funds will become scarcer, for new construction works as well as for maintenance. Although some funds from the "Stability Pact" might arrive, this trend poses a serious threat for infrastructure development in Kosovo. Sufficient funds will have to come from tax revenues raised in the country itself.

2. Investment

The overall investment climate in Kosovo is bad. This is mainly due to the prevailing situation of real or perceived physical insecurity for many people, but also because of the absence of a reliable legal system and the existence of widespread corruption.

It was also mentioned that the unresolved status question continues to play a major blocking role esp. as far as land ownership for investors is concerned who want to engage in the privatization of former state or so-called socially owned enterprises.

Very little has been invested so far, and if so then mainly by the Kosovo-Albanian "Diaspora". Some 90% of all investment was said to have gone into trade and other services. Thus, hardly any new real production started and very little value-added and new jobs were created.

It was lamented that customs duties and VAT on imports of machinery - with a combined rate of 26.5% - are as high as on foodstuffs like bananas. However, VAT import tax can be offset against a company's own tax payment obligations. Still, the customs rate of 10% for imported capital goods appears to be high. It was thus recommended that the new Parliament should soon make a plea to UNMIK that the rate be lowered.

3. Finance and credit

At present, there is no possibility to draw on international loans for Kosovo, nor to get credits for single larger investment projects. Again because of the unresolved status question, Kosovo cannot become a member of the Bretton Woods institutions or the EBRD, e.g.

The - considerably high - deposits with local banks (of which there exist 7 right now) are mostly reinvested abroad. The reason is simple: there is not enough loan business for the banks in Kosovo. In the absence of nearly any accounting and balance sheet rules, no rating of companies is possible. A lack of securities for loans, mostly due to unresolved property issues, makes it impossible to extend collateralized loans. Furthermore, a practicable law on insolvencies and bankruptcies is missing.

Only one bank seems to be functioning increasingly well: the Micro Enterprise Bank. MEB extended loans for over 50 million Euro in just 2 years and raised its limit for individual loans from 10.000 to 100.000 €. Only a few months ago, a subsidiary was opened in South Mitrovica (where also Serb loan officers are belonging to the staff), and only recently a MEB-representation was opened in Mitrovica-North.

4. Privatization

The unresolved status question is blocking investments in general but privatization of socially-owned companies in particular. These are somewhat vaguely and negatively defined as neither being private nor state-owned (both of which cannot be privatized anyway). Since the employees of the enterprises were by definition the owners of the firm, the question remains unresolved which employees should be regarded as the "legally" last owners to be compensated in the course of privatization?

One UNMIK representative gave the - unopposed - estimate that only 10% of all socially-owned enterprises might be interesting for foreign investors. Another 10-15% could be cases for management or employee buy-outs (MBOs/EBOs). The major part of socially-owned companies will have to go into liquidation because of their hopeless financial situation.

The so-called "Commercialization" of public enterprises (leasing to private persons), an attempt to bridge the difficult situation in the economiy between the unclear ownership status quo and the final status of Kosovo was only applied to 13 companies and did not work well. This is due to the "lease" period of only 10 years which is too short for paying off bigger investments. Many of the investors were anyhow only seeking quick profits and quite regularly practiced therefore asset-stripping or outright plundering of the companies involved.

UNMIK's soon-to-be-released new privatization model was described in short; it focuses on severing the (debt-ridden) past from the future, enabling investors to breathe new life into the companies without having to fear claims from former stakeholders. However, the model will not produce wonders, and little cash money will flow into the envisaged compensation fund for former owners.

Several times, the "myth" of the giant mining and industrial conglomerate "Trepca" was mentioned. Esp. Serb participants still place their hopes of restoring jobs and income production on this once powerful concern. But it was stated, solidly based on many international studies, that it will and can never be the same as before. Only some parts of it will have a chance of survival and continue operations, but mostly not with the former workers. Therefore, the Serb participants pleaded for further endeavors to create new jobs in the region claiming that an educated and well trained labor force is at hand.

5. Agriculture

Agriculture in Kosovo could deserve special treatment because of its manifold related aspects. It is shocking to realize that almost all food in the stores comes from costly imports whereas it should not be too difficult to develop a self-sufficient food-producing sector.

Conclusion

Stabilization of the economy is a precondition for political stability in Kosovo. As long as unemployment concerns half of the population, no stable social structures can be expected. Even some of the Albanian participants suggested to solve economic problems independently of the status question, citing the "hen-and-egg" problem which needs to be avoided. Among minorities, however, the sense of security is a conditio sine qua non for economic activity of any significant scale. The gray economy, it was said, already proves that Albanians and Serbs can work together for their mutual benefit, however, so far illegally and not to the benefit of the public. It is strange f.e., how many new, modern gas stations one comes across when travelling through the country, obviously a way to wash money from the grey economy, when at the same time no such money is available for financing small and medium sized enterprises. The working group urged everybody to solve problems jointly and legally.