Kosovo has made significant progress in many areas since the end of the conflict in 1999. It continues to consolidate and harmonize its democratic institutions and has made significant progress strengthening its basic legal framework and institutional structures, with a view to reinforcing the necessary foundations for a functioning market economy. The pursuit of economic reforms received new momentum after the 2014 elections when a new Assembly was formed and a new government took office in December. On 27 October 2015, the EU signed a Stabilization and Association Agreement (SAA) with Kosovo. This is a milestone on Kosovo’s path towards a European future. Some progress has also been made in facilitating business creation, improving the legal system, and financial-sector stability. Kosovo has been one of only four countries in Europe that recorded positive growth rates in every year of the post-economic crisis period following 2008. The average growth of 3.5 percent contrasts favorably to the region but has remained slightly below the global average.
Despite progress, economic growth, the rights of women and minorities, democratic governance, environmental protection, and the rule of law are constrained by poorly defined, administered, and enforced property rights. Kosovo still ranks high among the poorest countries in Europe, with widespread and persistent poverty. According to the UNDP, nearly 30 percent of the population is poor. While there are few significant differences between urban and rural areas, there are regional differences in terms of the incidence of poverty. Lack of economic growth is also due to limited progress in privatizing and liquidating publicly owned enterprises and budget revenues from these activities remain low in comparison to projections. However, the Ministry of Trade and Industry has drafted the “Private Sector Development Strategy 2013 – 2017” document, which represents coordination of activities of the Ministry toward development of the private sector. The Strategy mainly focuses on the development of Small and Medium Enterprises, investment promotion, enhancing internal markets, free movement of goods, and improvement of trade policies through changes in the legal, institutional, and policy framework. Weak institutional capacity and unclear property rights have continued to create disincentives for formal private sector activities.
Extreme poverty is disproportionately high among children, the elderly, households with disabled members, female-headed households, and certain ethnic minority households, especially in the Kosovo Roma, Ashkali, and Egyptian communities (World Bank 2015a). Reliance on remittances and a widespread informal economy likely contribute to already low labor market participation and high unemployment, which as of late 2015 stands at 35.3 percent overall, rising to 61 percent among youth. Labor market conditions are especially difficult for women. Only one in five women of working age are active in the labor market and only one in eight are employed. Limited job opportunities, especially for young people, are also putting a strain on social cohesion and encouraging emigration, which has risen since 2015. While land legislation gives women and men equal rights to property before the law, Kosovar Albanian and Serb women almost universally waive their rights to inherit property, often in the face of severe social pressure.
The most tenuous property rights are found among displaced people: Kosovo Serbs and other ethnic minorities, and those living within Kosovo’s informal developments. Displaced persons face problems in Kosovo in registering residences in the relevant cadastral offices because they lack proper documentation. Many Kosovars who left during the 1999 conflict have returned. The Government has developed a National Policy addressing reintegration, which is designed to support effective integration and repatriation of displaced persons (Ministry of Internal Affairs 2013e). Overall, central processing of repatriated people is relatively efficient and emergency assistance is provided to those in need. However, as in many post-conflict areas, land records have been destroyed, are nonexistent, or unreliable. The cadastre system is being reconstructed and updated, and tribunals are resolving property claims, but the pace is slow. Decentralized municipalities administer their own cadastres, but property transactions are not systematically reviewed and registered in the national cadastre. Tens of thousands of people are still displaced within the country and hundreds currently residing in 36 Collective Centres (CCs) in Kosovo. Almost 85 percent of the individuals living in CCs are from the Kosovo Serb non-majority and almost 5 percent from the Kosovo Roma, Ashkali and Egyptian (RAE) communities.
Kosovo is still in the early stages of adapting and implementing environmental standards. Kosovo has developed and/or approved a Strategy for Environmental Protection and Sustainable Development 2013-2022, the National Environmental Action Plan 2013-2017, the Air Quality Strategy 2013-2021, the Biodiversity Strategy and Action Plan 2011-2020, the Waste Strategy and Action Plan, the Framework Climate Change Strategy, the Water Strategic Plan and the Management Plan for River Basins. These documents determine for each policy area the necessary measures for environmental protection and the measures to be taken for climate-change adaptation and mitigation. However, waste management, air, and water quality are among the most serious issues the country faces: surface and groundwater resources are polluted by sewage and industrial waste. Air pollution is also significant and together these have had serious public health impacts. Lack of data, integrated monitoring, legal frameworks, and organizational capacity are cited as underlying factors.
Kosovo has high-quality agricultural land, which comprises more than half of its land use. Agriculture has always been a key sector in Kosovo’s economy, but it declined significantly during and after the conflict. Recent studies from the Kosovo Agency of Statistics indicate that some 140,000–150,000 people are informally employed in agriculture. The sector is constrained by land fragmentation and the small size of the agricultural parcels. This has posed a problem for sustaining adequate agricultural outputs, leading to lower agricultural production and economic losses at the household, local, and national levels. Labor statistics in other sectors, including services and industry are less reliable due to a large informal economy. An estimated 60 percent of workers between the ages of 20 and 64 work within the services sector and less than 20 percent work in industry.
Beyond agricultural lands, Kosovo possesses an abundance of natural resources, including trees and minerals. Kosovo’s forests are tree-species rich and comprise more than 40 percent of land use. Forests provide timber, fuelwood, and various non-timber forest products used by the population. However, only a small fraction of the harvesting is carried out in accordance with existing forest legislation. Progress has been achieved in the areas of developing long-term management plans, yet a high degree of illegal cutting of forests remains a challenge and greater engagement and mobilization of the stakeholders involved in the implementation of the forest strategy is required. Finally, Kosovo is rich in mineral deposits and their potential has been left largely untapped. In addition to 10.9 billion tons of proven, exploitable lignite reserves, the country has abundant deposits of ferronickel, lead, zinc, magnetite, and other ores that—if developed—could make a major contribution to employment and exports.
KEY ISSUES AND INTERVENTION CONSTRAINTS
- Support efforts to improve coordination among GoK institutions on property rights. The reconstruction and development of the cadastre system and land registration program appears well supported. Efforts to reduce landlessness, regularize informal settlements, and strengthen women’s rights to land should continue. Donors should support efforts to address gaps in current targeted efforts for better coordination and policy priorities related to land, improved court procedures related to property claims, enhancing women’s de facto rights to access and use property, and improved communication, access to information, and understanding of property rights.
- Support efforts to reduce land fragmentation through voluntary consolidation. Despite an abundance of viable agricultural land, the competitiveness of Kosovo’s agriculture shows that currently only a very small proportion of farms and processors can compete and capture a larger share of the EU and international market. The main structural causes of this low competitiveness are the small scale of most farm or family businesses, the fragmentation of their land, lack of financial means for investment, and the low level of knowledge concerning modern production technology and environmental protection. Donors should support initiatives that will improve these structural issues to create a more vibrant and competitive agricultural sector in ways that address the needs and strengths of women, youth and minority communities, engage with civil society, and protect the environment. These can include voluntary land-consolidation programs, support for linking agricultural products and farmers to markets, diversifying and increasing agricultural products, improving food quality and safety, making credit more accessible, and improving coordination and commercialization within the agricultural sector.
- Support efforts to improve land management. Protection of the environment needs serious consideration in future development plans. Further valorization of natural resources with a view toward economic development is a key issue for the development of Kosovo. Donors should support government efforts to reduce existing pollution, manage urban waste, and ensure the quality of drinking water for purposes of protecting public health and guaranteeing a clean environment. Improved land management that includes measures to protect the land from natural and man-made destruction and enforcement of a strategic urban planning process are the key challenges and should be included in governmental and local development plans.
- Support efforts to implement the Policy and Strategy on Forestry. The forest sector has previously lacked a central strategy and leadership. Under the “Policy and Strategy Paper on Forestry,” the overall objective of the Government of Kosovo is to increase the contribution of the forest sector to the national economy through sustainable use of the forest resources, taking into consideration as well the multi-functional role of forestry. To achieve this overall objective the Government will maintain and enhance the viability of the sector by developing a supportive regulatory and institutional framework and permanent financial mechanisms for increasing the status of the sector. Donors should support efforts of the GoK to reach four main objectives as laid out in the Strategy. Additional support for the non-timber (wood) forest products sector (NTFP) sector will enable rural income generation, and thus help improve the national economy. This will require clarification of roles at the central and municipal levels: decentralization has devolved some aspects forest management to municipalities, although they lack the resources and knowledge to adequately assume this role.
In 1989, the Milosevic regime with the Socialist Federal Republic of Yugoslavia (SFRY) eliminated Kosovo‘s autonomous status and placed Kosovo under direct rule. The decade of discriminatory control over ethnic Albanians and armed conflict that followed displaced hundreds of thousands of Kosovo nationals and destroyed property throughout the country. At the conclusion of the armed conflict in June 1999 the United Nations Interim Administration Mission in Kosovo (UNMIK) established a transitional government and set the stage for development of Kosovo‘s independent government.
Kosovo declared its independence in February 2008. The government promised to embrace multi-ethnicity as a fundamental aspect of good governance. With support from the EU’s Rule of Law Mission (EULEX) police, judges, prosecutors, and customs officers were deployed throughout Kosovo. Kosovo adopted its Constitution in 2008 and has developed a substantial body of law and policy. The country joined the International Monetary Fund and World Bank in 2009. As of July 2015, 112 countries have recognized Kosovo‘s independence. Serbia and Russia are among those that have not recognized the country‘s independence. A landmark Serbia-Kosovo deal, brokered by the EU, concluded on April 19, 2013. It paves the way for both Serbia and Kosovo to make progress towards EU accession.
Kosovo is one of only four countries in Europe that recorded positive growth rates in every year of the post-1999 period (World Bank 2015a). With a relatively stable political, economic, and institutional framework in place, Kosovars have been returning to the country. However, tens of thousands of people are still displaced. And despite economic progress, Kosovo ranks among the poorest countries in Europe. Poverty is disproportionately high among children, the elderly, households with disabled members, female-headed households, and certain ethnic minority households. Reliance on remittances and widespread economic informality decreases incentives to search for employment and contributes to already low labor market participation and high unemployment, especially among youth (World Bank 2015a).
Weak institutional capacity and unclear property rights create disincentives for formal private-sector activities. As in many post-conflict areas, land records were destroyed, are nonexistent or unreliable. The cadastre system is being reconstructed and updated, and tribunals are resolving property claims, but the pace is slow. Legislation gives women and men equal rights to property before the law. However, Kosovo Albanian and Kosovo Serb women almost universally waive their rights to inherit property, as a matter of cultural practice and often in the face of severe social pressure.
Kosovo is still in the early stages of adapting and implementing environmental standards. Waste management, air, and water quality are among the most serious issues. Kosovo possesses an abundance of natural resources, including trees and minerals, which, if developed—could make a major contribution to employment and exports. Kosovo is also endowed with good quality agricultural land—and had been largely food self-sufficient in the past. Over the last decade, demand for high-value horticulture products has surged more than any other food category. However, unfavorable farm structures, land fragmentation, outdated farm technologies and farm management practices, weak rural infrastructure, a rudimentary rural advisory system, and limited access to credit and investment capital are all limiting factors. In addition, Kosovo’s farmers are placed at a competitive disadvantage as agricultural imports originate in neighboring and EU member states in which farmers receive production and export subsidies.