The Poverty of Independence in Kosovo
By Ekrem Krasniqi for ISN
Since December last year, Kosovo - whose unilateral declaration of independence in February 2008 has now been recognized by 65 countries - has been wracked by civil unrest, with protesters demanding improved living standards, more benefits and salary increases in all sectors.
Despite the salary increases promised by the government for some, the situation does not look set to improve anytime soon, and the poverty alarm bells are sounding.
According to the International Monetary Fund (IMF), Kosovo's GDP per capita is €1,726 ($2,346), a number that reflects only external page6.9 percent of the EU-27 average.
Exports are dangerously low - a situation that has been compounded by the move last spring by Serbia, Montenegro and Bosnia and Herzegovina to block Kosovo exports, even in terms of transit through those countries, for political reasons.
IMF statistics show that imports increased steadily from 2005 to 2008 from €1.16 billion to €1.93 billion, or by 66.6 percent. Exports remain at less than 6 percent of GDP, though between 2005 and 2008 they increased from €56 million to €199 million.
Kosovo's overall trade deficit was estimated at 43 percent of GDP in 2009.
“High external imbalances reveal underdeveloped domestic production capacity and points at significant vulnerabilities. In addition to implementing sustainable macro-economic policies, Kosovo needs to address supply-side constraints such as infrastructure weaknesses, energy shortages, high capital costs and low levels of skill. It is essential for Kosovo to improve the competitiveness of its economy, increase productivity and strengthen its export sector,” the European Commission, the EU’s executive body, stated external pagein a report last year.
Economic development, or a lack thereof, appears to be playing second fiddle to basic law and order, and the risk of economic and social collapse are very real.
For all intents and purposes, Kosovo depends on imports, diaspora remittances and the expenditures of international personnel to stay afloat. Remittances from the diaspora, located mainly in Germany and Switzerland, account for about 14 percent of GDP and donor-financed activities and aid for another 7.5 percent of GDP.
The poorest of the poor
Kosovo has been not been particularly affected by the global economic downturn due to its limited integration into global markets. That said, the European Commission warns that inflows of foreign direct investment and remittances are expected to decrease, and levels of public investment are expected to drop as government revenues come under increasing pressure.
Kosovo has persistent power cuts. The electricity issue is still a serious unresolved sector and illustrates the profound economic crisis and dilemma Kosovo is facing. In the capital Pristina, frequent water cuts after midnight can last for hours.
Unemployment is around 45 percent, while the average monthly salary hovers around €250. According to a external pageWorld Bank study, living standards are very low, mainly because real economic growth in the last four years has been slow and labor market conditions have been poor as a result. The study defines poverty as having less than €45 per person per month in 2008. The report finds that around 45 percent of the population had consumption levels below this line. About 15 percent of the population is estimated to be extremely poor.
And the poverty seems to be deepening, according to a fresh survey, which says that 7 percent of Kosovo’s 2 million citizens receives €0.45 each day in social benefits. According to the Kosovo Institute for Social Policies (KISP), that 7 percent is below the ‘extremely poor’ category who live on €0.93 per day.
The end story, then, is that around 150,000 Kosovo residents live on €0.45 per day, or €14 per month.
Six percent of the surveyed families receiving aid claim that the money they receive cannot even pay for necessary medicine. ^
Twenty percent of those surveyed by KISP said that the assistance they receive covers only the most basic expenses for about 10 days each month.
A laundry list of problems
Michail Emerson from the Center for European Policy Studies (CEPS), a Brussels-based think tank, in an interview with ISN Security Watch listed six main reasons for Kosovo’s dire economic situation.
“First, of course the lack of complete international recognition by all EU member states and some neighbors means political uncertainty. Second, and linked to this, [is] the uncertain future of northern Kosovo, with risks of renewed conflict.
"Third, poor transport communications with the rest of the Balkans and the EU," Emerson said. "Fourth, unfavorable perceptions still over problems of corruption and criminality in Kosovo - about which I am not personally well-informed - but the state of perceptions in the outside world is what is damaging for investment prospects.
Emerson said that the fifth issue was the "remaining visa restrictions on the movement of Kosovo people in and out of the EU, especially now compared to Macedonia and Serbia," The final sticking point was that there were no "comparative advantages" in the economy and that it lacked favorable branding to pull in investors.
According to Emerson, the Kosovo government must “work out what its comparative advantages are to be, invest in them with education and training programs, and get a clearly branded message out to potential investors.”
But he also sees a role for the EU to rescue Kosovo’s economy. “The EU has to work towards the complete integration of the Kosovo economy into the EU single market, and to resolve the political uncertainties,” he said
Assuming responsibility
Economic and social disillusionment among Kosovars is growing, with a clear majority blaming their politicians.
According to an external pageEarly Warning Report from the UN Development Programme (UNDP) the level of discontent toward the government over the economic situation has increased by 20 percent during the last six months. Of 1,294 citizens interviewed by the UNDP between January and early February 2010, 92 percent hold the government responsible for the economic problems. On the other hand, the government and institutional leaders speak primarily of progress and focus on political stability and security issues, while avoiding the pressing matter of economic underdevelopment and looming poverty.
Prime Minister Hashim Thaci external pagerecently heralded Kosovo’s major achievements, particularly pointing to the declaration of independence, recognition by and membership in the IMF and World Bank, as well as EU promises of integration as significant successes.
But an Ethnic Albanian youth-movement leader has been rather vocal recently about his country sharing that blame with the international community, namely the UN Mission in Kosovo (UNMIK) and its successor, EULEX.
Albin Kurti, leader of the Vetevendosja (Self Determination) youth organization believes that the current generation of Kosovo politicians has failed completely. He is calling for an urgent rethink of how the EU operates on the territory – and his voice is becoming increasingly heard.
Kurti, a rising young politician, believes that the EU mission’s mandate has been ill designed, and that it should shift its focus from rule of law to economic development, in an advisory capacity.
The 35-year-old, considered by many as the strongest and most outspoken critic of organized crime, corruption and economic underdevelopment in Kosovo, suggests that the EU mission prioritize the economy, specifically in terms of a plan that would help to attract serious foreign investors, and help Kosovo producers satisfy internal market needs and then export.
"Kosovo’s two million people are turning into a consumer nation of Serbian, regional and European products. If this phenomenon doesn't change urgently, I don't think the EU will desire to scrap visas for our citizens and let a poor Kosovo join the EU," Kurti told ISN Security Watch.
“We need the EU to help us develop our economy. We have economic potential. We have sufficient natural resources [...] and could have a self-sustainable economy. [...] The development work should start now,” Kurti warned.
According to a external page2008 UNDP report, “Now that the final status is determined, dissatisfaction and concerns about employment and poverty are more pronounced among the population.”
The report stipulates that “since many issues related to the economy were linked to the lack of final status, this is no longer a valid excuse; the government should create a list of priorities with regard to capital investments and start implementation immediately.”
Indeed, foreign officials in Kosovo agree that local institutions are now where these questions should be addressed.
Andy McGuffie, spokesperson for the International Community Office (ICO) in Kosovo, says that Kosovo institutions are now in charge, and as such, must take responsibility.
“Kosovo was under international interim administration from 1999 to June 2008. Since the entrance into force of the Kosovo Constitution [in June 2008] the institutions of the Republic of Kosovo have primary responsibility in the economic field,” he told ISN Security Watch.
“It is right that citizens now look first to them for action,” he said.
In what could be seen as an effort to appease critics, Thaci decided in March to overhaul of his cabinet, dismissing six ministers and creating the Ministry of Integration. The PM gave no explicit reason for the dismissals but stated that the shuffle was made, "to bring Kosovo closer to the EU and NATO."
But ministries related to the most critical sectors; economy and finances, trade and industry remain intact.