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Thesis AssignmentKosovo as a post-war region

Date:November 11, 2013

TABLE OF CONTENT

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1. Executive summery 3

2. Introduction 4-5

3. Problem Statement 5

4. Methodology 5

3.1 Division of labor between international organizations in peace building; Overlap 7

3.2 Business improvement on relation North-South Kosovo; barriers overcoming

17

3.3 Macro-economic environment in Kosovo; foreign direct investments, corruption 28

5. Conclusion 34

6. References and bibliography 35

1. Executive summary

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Accumulated knowledge and experience in market research projects in the North Kosovo encouraged me to reach certain themes in my work.

First of all, I was encouraged by the number of foreign bodies which are present here on Kosovo, the time they spend here and not so encouraging results they have achieved. In the first part I tried to introduce division of responsibilities among organizations, their mutual cooperation in an effort to rebuild Kosovo. First I explained the responsibilities of each institution, the UN, EULES, OSCE, and KFOR. Throughout the text I'm trying to point out that there is a considerable amount of overlap between the responsibilities of each of these organizations.

In the second part I risked and tried to present a brighter future. I tried to find in the database of any association with better performance, specifically with overcoming barriers of any kind. I used fresh facts to destroy the prejudice and I believe that they are sufficiently convincing and very optimistic. I was searching for gap in this multiethnic society, which is still struggling to survive, but cannot see clearly because of the strong impression of previous events that happened on Kosovo.

In the third part I stated my frustration gathered during market research in the north. I have presented how wrong, not carefully determined foreign direct investment can influence on society on North Kosovo and what it does to their willingness to survive. I did not avoid the corruption that has here become common situation. People began to see it as part of the normal functioning of society.

In general, my work deals with Kosovo as a post-war region, and with all of the characteristics that it brings.

2. Introduction

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Welcome to Kosovo, an inexhaustible subject of the media, ''dearly missed by Serbs''.

Conflict which happened in late 90’s, left on this region indelible mark which is still going on. There will always be some debate that corresponds to the unresolved issue of Kosovo to take longer.

This region has always been intriguing, mysterious, just encouraging. We will never be able to verify facts that will be presented later in the paper concerning Kosovo. All what is in my power is to evaluate the current situation from my perspective and on that basis to judge about near future.

I will give all my efforts not to involve any political reasons which could result this situation on Kosovo, although they are the strongest factor. I will try to combine aspects of marketing, sociology with less politics.

I took certain macroeconomic elements and I represented them as quite normal and acceptable for Kosovo, and that's a fact. People have simply gotten used to this situation and accept what was offered.

Who ever visited Kosovo after the conflict, he was able to preserve that this region has began to isolate, using isolation as a defense system. We see little multiethnic society, with plenty of obstacle appearing every day.

Kosovo look like a bustling nation in creation, as a child with a bad example of parents.

Welcome.

3. Problem statement

There are few problems we are going to research:

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1. Division of labor between international organizations in peace building; Overlap

2. Business improvement on relation North-South Kosovo; barriers overcoming

3. Macro-economic environment in Kosovo; foreign direct investments, corruption

4. Methodology

Methodology of research takes very important role in writing the thesis. It presents method of getting the information we need in goal to get information’s about subject of our research.

In goal to get as more information is possible, and in further work analyze them to get specific conclusion, we used questionnaires. Our questionnaire, which we used to analyze around 330 companies operating in private sector and stated in North part of Kosovo, has 31 questions which are separated in 5 sections. Classification of dividing questions on 5 sectors is made based on which information’s we would like to receive.

According to that we have 5 sections in questionnaire:

1. Information’s related with structure of the company (9 questions) 2. Target markets (9 questions)3. Business environment of the company (7 questions)4. The competitiveness of the company (4 questions)5. Needs (2 questions)

Questionnaire is conducted in 4 municipalities which are stated on North Kosovo :

1. Zvecan2. Zubin Potok3. Leposavic4. Kosovska Mitrovica

The whole process was separated in few phases:

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Collecting information’s about companies stated in target sector (North Kosovo) – main role of this phase was to collect contacts of companies, addresses, and contact persons. To classify companies by sector they are operating in and to drawn certain number of companies from every sector, in goal to cover wider number of sectors.

Second phase was completing the questionnaires and most important, trial run. Trial run was important because we wanted to see are we getting information’s we targeted with questionnaire and did us formulate questions in way that they are not making any confuse during the answering.

Third phase was conducting the questionnaires. We succeed to examine 331 companies.

Last phase was analyzing of questionnaire, and analyzing of received results.

3.1 Division of labor between international organizations in peace building; Overlap

United Nations (UN), the European Union (EU), the Organization for Security and Co-operation in Europe (OSCE), and the North Atlantic Treaty Association (NATO); Do these actors cooperate with or compete against one another in Kosovo?

This part contributes to the international security and organizations literature through an examination of international community’s post-conflict reconstruction activities in Kosovo. Post-conflict

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reconstruction in Kosovo has wide-ranging implications on European and international security. I will try to conduct a case study y of the division of labor between UN, NATO, OSCE and EU as well as the effectiveness of cooperation between them in rebuilding Kosovo and attracts attention to the importance of effective division of labor between international institutions in the field.

It finally addresses the following question: What can be done to improve the effectiveness of comprehensive and multi-dimensional peace-building activities by international and regional organizations?

Civil wars and humanitarian contingencies are a common fact of life in many societies. In the post-cold war era, bringing an end to intrastate conflicts and building a long-lasting peace have become priority items on the agenda of the international actors.

The strongest issue which imposes frequently is f how international agencies such as the United Nations (UN), the European Union (EU), the Organization for Security and Co-operation in Europe (OSCE), and the North Atlantic Treaty Association (NATO) can tango without stepping on toes of each other; in other words, how they can best learn to effectively deal with post-conflict situations and avoid duplication of efforts and overlapping missions.

The international organizations shoulder a key responsibility in post-conflict peace-building. This is also true for the reconstruction process in Kosovo which started in 1999. In an integrated operation, the division of labor between international actors becomes a vital issue. Central aspect of post-conflict rebuilding is the challenge to develop mechanisms of international governance capable of promoting sustained and coherent efforts to maintain stability and security. Despite the fact that integrated operations are becoming more prevalent in reconstruction processes throughout the world, there is no sufficient amount of scholarly attention on international organizations’ cooperation in peace-building operations. Consequently, the study of international security must confront the question of how international organizations such as the UN, EU,

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NATO, and OSCE can best learn to effectively deal with post-conflict reconstruction.

Consequently, the study of international security must confront the question of how international organizations such as the UN, EU, NATO, and OSCE can best learn to effectively deal with post-conflict reconstruction (Doyle and Sambanis, 2000). The complex nature of challenges in a post-conflict zone requires an effective cooperation among the institutions involved in building the peace. Otherwise, the involvement of multiple international institutions can be disconcerted and dysfunctional; and, reconstruction may eventually backfire.

Since 1999, Kosovo has been the spotlight of four international/ regional agencies – UN, OSCE, NATO and the EU. Security and stability in Southeastern Europe is vital for all of these institutions. Accordingly, all four of these organizations conducted or still are conducting their largest ever field operations in Kosovo. These international actors all share similar principles and values, as well as important responsibilities in conflict prevention, crisis management and post-conflict rehabilitation, the promotion of democracy and human rights and institution building.

This section conducts an in-depth qualitative analysis of how these different international/ regional institutions collaborate with or compete against one another in helping Kosovo get back on its feet. It analyzes the official documents of four different missions that are actively involved in building the peace in post-conflict Kosovo. It seeks to pursue answers to the following questions: Do these actors cooperate with or compete against one another in Kosovo? What can be done to improve the effectiveness of comprehensive peace-building activities by these important international/regional actors?

Accordingly, the following section compares and contrasts the goals of the UN, NATO, EU, and the OSCE missions in Kosovo and analyzes the organizational learning and evolution of their respective operations. It examines how these different organizations fare in recognizing emerging threats, diagnosing security problems, and responding to these challenges in Kosovo.

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UN Mission

Since the end of the military operation in 1999, the United Nations Interim Administration Mission in Kosovo (UNMIK) has administered Kosovo. UNMIK’s broad mandate included establishing a transitional civilian administration, promoting the establishment of substantial autonomy and self-government in Kosovo, supporting the reconstruction of infrastructure, maintaining civil law and order, promoting human rights, and ensuring safe return of refugees and displaced persons to their homes (Resolution on the Establishment of UNMIK and KFOR, 10 June 1999).

UNMIK was also assigned the authority to coordinate the humanitarian relief and reconstruction efforts of all international agencies. In other words, UNMIK was responsible for the division of labor among the international agencies that operate in Kosovo. The original second pillar UN operation, which was under the responsibility of UNHCR, aimed at assisting the successful return of refugees to Kosovo.

From the beginning of the operation, OSCE was in charge of the Democratization and Institution-Building pillar, and the EU was responsible for the Reconstruction and Economic Development pillar. Additionally, NATO was responsible for providing military protection in Kosovo. Starting in April 2002, UNMIK established the “Standards for Kosovo” on eight fields that were seen as priorities for the established Kosovo institutions. The eight fields were: functioning democratic institutions, rule of law, freedom of movement, sustainable returns and the rights of communities and their members, economy, property rights (including cultural heritage), Pristine-Belgrade dialogue, and Kosovo Protection Corps (KPC). The purpose of the standards was to create a more tolerant multi-ethnic society, improve levels of public sector performance, and promote good governance (UNMIK, Kosovo Standards Implementation Plan, 2004).

Since its foundation, UNMIK (as one of UN branches) created a multinational police force and a judicial system. In addition to setting up a functioning civil administration including police,

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creating a democratic political atmosphere respectful human rights, repatriating over one million refugees and reconstructing the infrastructure and the economic life of Kosovo, it was UNMIK’s crucial task to facilitate a political process leading to a definite status of the then Serbian province.

EULEX Mission

“Prepare for a possible future EU crisis management operation in the field of rule of law and other areas such as the fight against corruption and organized crime, strengthening of multiethnic institutions in Kosovo.”

The European Union Rule of Law Mission in Kosovo (EULEX) was finally launched by the EU Council on 16 February 2008 after months of delay. The initial mandate of EULEX is for two years, but the mission is foreseen to be terminated when the Kosovo authorities gain enough experience to “guarantee that all members of society benefit from the rule of law.”

Since UNMIK’s mandate recognizes its territorial integrity, Serbia opposed the EULEX mission and insisted on the continued existence of UNMIK. In response to Serbian anxieties, EULEX declared itself as “status-neutral.” Despite the success in deploying EULEX throughout Kosovo, the Serb-inhabited north remains outside the control of the Kosovo government.

With EULEX, the EU is signaling its determination to take over post-crisis management in Kosovo. The performance of EULEX will have significant implications on the prospects of cooperation or competition between the EU and NATO.

The central aim of EULEX is to assist and support the Kosovo authorities in the rule of law area, specifically in the police, judiciary and customs areas. It also aims to investigate and prosecute war crimes cases, and trace missing people. It is not only operational in parts of Kosovo that are heavily populated by Kosovar Albanians, but also in the Serb-inhabited north. It has a budget of EUR 250 Million.

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The EULEX mission continuously underlines that it respects the “local ownership” principle. It declares its goal to be assisting the Kosovo institutions, judicial authorities, and law enforcement agencies in developing and strengthening an independent multi-ethnic justice system, police force and customs service. The key priorities of the EULEX mission are to address immediate concerns regarding protection of minority communities, corruption and the fight against organized crime.

In August 2008, UNMIK and EULEX signed a memorandum transferring responsibilities from UNMIK to EULEX in the areas of justice, police and customs. But the Serbs opposed to the establishment of EULEX. Consequently, EULEX did not completely “replace” UNMIK but rather support, mentor, monitor and advise the local authorities while exercising executive responsibilities in specific areas of competence.

The lack of single voice from the EU on Kosovo’s status is posing a challenge to the credibility of the EULEX operation in Kosovo in the eyes of the local population. That adds another complication to the current situation on the ground.

OSCE Mission

OSCE highlights norms of international behavior and internal political standards. Like the EU, OSCE too works in the crisis-management field. It deploys observers or mediators, and addresses minority rights issues and cross-border ethnic tensions in Europe.

It has been responsible for institution- and democracy-building and establishing human rights and rule of law in Kosovo. It helps in promoting peace, security and stability in the regional context, in particular by its broad range of activities in the area of conflict rehabilitation.

Since the adoption of UNSC Resolution 1244, the OSCE Mission in Kosovo has been responsible for supervising the progress of democratization, the creation of institutions, and the protection of human rights.

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Since 2001, OSCE has organized and supervised four elections in Kosovo. Elections are still a reserved responsibility of UNMIK which have been delegated to the OSCE.

NATO, EU, and OSCE all work in the area of police training. The OSCE was made responsible for training the new police service that would uphold human rights and democratic policing principles. OSCE created the Kosovo Police Service School institution that over the last two years evolved into the Kosovo Centre for Public Safety Education and Development. Even though it gradually handed over responsibility for training and the Centre’s management, OSCE still supports the delivery of human rights and advanced training programs. Additionally, through legal system and security sector monitoring, OSCE provides a comprehensive overview of human rights accountability in the justice and police sectors. This demonstrates a duplication of efforts by OSCE Mission in Kosovo and EULEX.

Another area of intersection between KFOR, EULEX, and the OSCE Mission in Kosovo is that OSCE helps the police develop a partnership with the public and carry out community-policing activities. It provides specialized courses and supports public outreach activities. It also helps create a more secure environment in municipalities by assisting the development and work of municipal community safety councils and local public safety committees, which address public concerns, particularly those of minority groups.

KFOR Mission

KFOR was created as a product of cooperation between NATO and EU. Under UNSC Resolution 1244, NATO’s Kosovo Force (KFOR) has been responsible for establishing and maintaining security in Kosovo since 1999.

The responsibilities and the composition of the KFOR mission have changed within the past 10 years. The mission of KFOR was to establish and maintain security in Kosovo, monitor and enforce compliance with the conditions of the Military Technical Agreement and the UCK.

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At the end of the conflict in 1999, international organizations other than NATO were not in place in sufficient force. In this power vacuum, KFOR “had no choice but to perform a number of civilian tasks, from policing duties to running electricity plants.” These were then gradually transferred to either UNMIK or Kosovar authorities, although KFOR continues to support them as necessary. KFOR was and still continues to be responsible to provide a safe environment for the work of the international community in Kosovo.

It still provides assistance in the field of defense reforms, external defense, protection of enclaves and religious sites, and assists the police services in the event that the latter are unable to adequately respond to internal security challenges.

There is a considerable amount of overlap between the responsibilities of EULEX and KFOR. However, EULEX Kosovo also has some executive powers in the broader field of rule of law, in particular to investigate and prosecute serious and sensitive crimes.

After a detailed analysis of each organization’s peace-building operation in Kosovo, we now proceed with an analysis of the cooperation and competition between these organizations on the ground.

The UN, EU, NATO, and OSCE in Kosovo all share the same objective: to support and assist the Kosovo authorities in developing a stable, viable, peaceful and multi-ethnic society in Kosovo, cooperating peacefully with its neighbors. Moreover, as demonstrated in the previous section, there is considerable overlap between the missions of UN, EU, OSCE and NATO on the ground, which leads to bureaucratic competition between these international organizations as well as to incoherent peace-building efforts.

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The international or regional organizations are large international bureaucracies. Like all bureaucracies, international institutions fight for resources and increased power.

“The EU and NATO are fishing from the same pool of resources in terms of personnel and capabilities.” (Javier Solana, EU High Representative for the Common Foreign and Security Policy)

All of organizations that are analyzed in this paper agree that there is an urgent need for the countries in the Western Balkans region to focus more on strengthening the rule of law and the judicial system, and combating organized crime, corruption, illegal migration and human trafficking, as well as building robust police force. At the same time, each of these institutions is motivated by survival instincts. That is to say, all of them are willing to prove that they are still relevant in a post-cold war world. This creates further competition and rivalry between these organizations.

Furthermore, UN, NATO, EU and OSCE all learn through their experiences in the field. They adjust their organizational structures and their rules of conduct accordingly. They learn how best to interact with one another. This learning process may take some time.

However, there is some hope for increased coordination in the realm of peace-building operations. In December 2005, the UN Peace building Commission is established to “advise and propose integrated strategies for post-conflict recovery”. The Peace building Commission plays a unique role “in bringing together the relevant actors, including international donors, the international financial institutions, national governments, troop contributing countries; marshalling resources and advising on and proposing integrated strategies for post-conflict peace building and recovery and where appropriate, highlighting any gaps that threaten to undermine peace.”

To avoid competition, there should be more centralized efforts to coordinate reconstruction operations. However, so far, we have only seen bilateral agreements between these institutions for encouraging collaboration between them. For instance, in August and September 2005, UN and NATO signed a UN-NATO Framework

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Agreement in order to facilitate the cooperation on the ground in Kosovo.

Despite the fact that EU, NATO, and OSCE all offer a European future to Kosovo, each international institution has a different comparative advantage. Each organization should use their specific comparative advantage in an integrated peace-building operation. For instance, NATO should only conduct military operations, without meddling into the domains of more civilian-oriented organizations. At the same time, EU should constrain its aspirations to establish an independent ESDP.

Successful peace-building operations require the continued commitment from international or regional organizations.

In compliance with the UN, EU, NATO and OSCE each should use the advantage of regional organizations in providing peace and stability in Kosovo. NATO, instead of improving its civilian post-conflict reconstruction skills, it should engage in more productive relationship with OSCE and the EU, which are better equipped with civilian tools. NATO’s role should be limited to filling temporary gaps and supporting other international actors until they are fully able to perform their tasks.

NATO should not make a broader contribution drawing on capabilities such as engineering and medical support, as well as non-military capabilities such as civil emergency planning. These are sensitive domains, touching on the responsibilities of other organizations involved in international peace-building. This leads to turf battles between these different institutions. It is essential for each institution to make sure that they are not infringing upon others’ mandates!

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None of the organizations that are analyzed here are supranational in nature. As such, they still depend on the willingness of their member states to commit themselves to support deployment of government and private sector resources. Accordingly, the subsequent research should focus on the preferences of key nation-states. The current mandate of EULEX is not making any references to the economic development in Kosovo. Successful reconstruction requires continued political will and flow of financial resources.

Finally, the international community might have some unrealistic expectations about peace-building. It is a long and arduous process. It requires support from the local population and continued support from the international community.

3.2 Business improvement on relation North-South Kosovo; barriers overcoming

If we take in consideration that we, using SME analysis on North Kosovo, covered more that 80% of enterprises, both registered and unregistered, we have the right to call on collected date and confirm out opinions and claims.

There is no need to point out characteristics of this area; I think we are all informed enough. Fourteen years past since conflict, and even though progress of recovery is slow, I will try to present you certain facts and try to introduce you a better future of this region, and optimistic facts regarding business relationship between Serbs and Albanians.

Taking into consideration that Kosovo, as the post-war region, is a multi-ethnic society with still a lot of prejudice and misunderstanding among societies of different races, we may conclude that a shift in co-operation can be considered as a progress going in overcoming barriers.

I would like to start with a fairly convincing fact.

The part of the questionnaire called framework conditions / business environment had a question: Do you believe that

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business (generally) dealing with South Kosovo would experience disadvantage in their local community?

If you had asked this same question 10 years ago, the relationship between opinions would be quite different.

As one of the participants in this project, I worked on the interviewer's position, therefore, was in direct contact with the majority of respondents, therefore, I could better judge of the validity of their responses.

While asking this question, I noticed that prevailed direct and fast responses. There was no doubt.

As can be seen from the chart, answer NO is prevailing. It occupies 83% of all answers, i.e. it is 274 answers from all responses received (331).

Regarding answer YES, we can see that it occupies only 17%, i.e. 57 answers from total 331.

I chose to start this way this section of my work to show the people's thinking changed, and for the sake of a better future and success in business, people overcome existing barriers. There are an increasing number of people who want to work with the South and a decreasing number of people who condemn those same people.

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The percentage of people who answered yes to the question, for the task had to answer the following question:

From your perspective; doing business with South Kosovo lead to…

Loss of reputation amongst your com-munity(n=54)

Loss of freight/ goods through robbery or destruction(n=54)

Would cause problems or create barriers to doing doing business in your local

market(n=53)

Increase in payable tax(n=53)

Acceptance as business partner in the south(n=54)

20%

11%

13%

21%

17%

8%

13%

25%

13%

56%

43%

37%

49%

47%

40%

53%

43%

46%

22%

39%

41%

28%

34%

46%

30%

30%

30%

2

7%

9%

2

2

6%

4

2

11%

Strongly Agree

Agree

Disagree

Strongly Disagree

Acceptance as business partner in the south (n=54)

Risk to your person or personal security of your family (n=53)

Increase in payable tax (n=53)

Loss of earnings (n=52)

Would cause problems or create barriers to doing business in your local market (n=53)

Benefit in terms of increased revenue and profitability (n=53)

Loss of freight/ goods through robbery or destruction (n=54)

Increase risks to payment of invoices (n=54)

Loss of reputation amongst your community (n=54)

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From this chart we can see that although respondents argue for disapproval of cooperation, their opinions were not so convincing.

In rare cases, we have a situation where positive answers prevail convincingly.

In the questionnaire, we asked extensive questions whose purpose was to discover what the respondents considered the greatest barrier in doing business with South.

Do you agree that the following are barriers in doing business in south Kosovo?

Corr

uptio

n

Tax

evas

ion/

bla

ck m

arke

t

Non

loya

l com

petiti

on

Adm

inist

rativ

e ba

rrie

rs

Rule

of l

aw

High

Tax

es

Elec

tric

ener

gy

Legi

slatio

n

Road

s and

Tel

ecom

mun

icatio

n

Com

petiti

on

Paym

ent d

elay

s

Lack

of d

eman

d

Raw

Mat

eria

l

Acce

ss to

fina

nce

Prod

uctio

n ca

paciti

es

Lack

of i

nter

net

Wor

kers

’ ski

lls

Man

ager

ial s

kills

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

020406080

100120140160180200

Strongly Agree Agree Disagree Strongly Disagree

This chart shows separately which barriers are seen in the eyes of Serbs as threats for doing business with Albanians.

Respondents believe that competition is a barrier to business but in this case the same competition can also be called a healthy competition that encourages the creation of better products and creating more developed markets. Roads and Telecommunication is seen as barrier in just 34% from all received answers. Even

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though South Kosovo uses other provider, which does not have its network facilities in the North, they do not see this as a problem in their mutual business interaction. Regarding roads, I share their opinion. Even in delicate situation, after the war, roads have been blocked in several cases and even that did not stop people to trade. Electric energy, after the conflict, was not charged, nor water, nor utilities and people for now do not see this as a obstacle for business, which can be seen from the fact that they saw electric energy as a barrier in only 21%. High taxes are seen as barriers to only 39%. Although Serbs see their competition in the South as unfair, we cannot say that they also feel that they are unfair in terms of payment and that view is present as the pre-conflict and so far. The demand is certainly not lacking in this market and more than 50% of the respondent believes that the demand is not a barrier. More than 70% of respondents believe that raw is not a barrier. Sectors of business that are prevalent here in the north are construction and catering and for these branches of the business there is simply no shortage of raw materials. From the attached chart it can be also seen that respondents do not consider access to finance, production capacities and lack of internet as a threat. Also in 65% of answers they say that managerial skills are not the problem, but from my perspective, the interviewer, I think that the majority of respondents were not informed enough regarding the last question.

All 18 mentioned and analyzed barriers have left not a strong impression of insurmountable obstacles and even in certain cases, opinion prevailed that they are not barriers and are on track to completely disappear.

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Using the data that will appear in the following chart, I'll try to connect companies that do business with South Kosovo and enclaves in the southern part of Kosovo, with the changes in their turnover. There was no direct question, from which we could receive these fact.

22%

18%

28%

19%

13%

Decrease 6%Decrease 0-5%Increase 0-5%Increase 6-10%Increase more then 11%

I have to add that from 331 surveyed firms, 88 of them are dealing with South Kosovo and enclaves on southern Kosovo, which more than 35%. This figure is not negligible if we take into a consideration that, few years ago, this scenario would not be feasible.

I managed to connect information from the questionnaire, where we ask in which markets are they active, with the figures on the change of their turnover to reach to the point where it becomes clear does the cooperation with the South contributed to the increase or decrease of firms turnover.

Figures are showing us that it is prevailing percentage of firms that increased turnover while cooperating with the South Kosovo.

60% of entrepreneurs have increased its turnover, compared to 40% where turnover fell.

In the chart, we can see that out of these, only 22% of cases (19 companies), the company turnover decreased by 6% and more

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and in 18% of the total (16 companies), company turnover decreased from 0 to 5 percent. It is together 40%, which for this region is a good script.

The largest number of firms is in the group where their turnover increased for 0-5% (25 companies), 19 % i.e. 17 companies increased their turnover between 6% and 10% while 13% i.e. increased their turnover for 11% or above it.

It is more that clear that cooperation with the south in larger percentage had a good influences and stimulated companies toward their overall progress.

In order to confirm previous information given, I will present an analysis done on the issue:

What is the average growth rate of your business outside the local market?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

55% 56% 55%

29%

75%

35%30% 27%

14%10%

14%18%

57%

100%

25%

0-5%6-15% ≥16

What is the avarage growth rate of your bussines outside the local market?

n = 62

No. of companies

Markets

From total number of 331 companies, 62 of them are working in some other market, except local.

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Here we are interested only in Serbian enclaves and South Kosovo. Regarding enclaves, 62 of them said that they are involved in this market, where 34 of them said their growth rate is in range 0-5%, 22 said that growth rate is 6-15% and 6 said growth rate equal or above 15%. Only 8 surveyed firms had negative growth rate!

Regarding South Kosovo, 55 firms is working in this market were 30 of them said their growth rate is 0-5%, 15 said that growth rate is from 6 to 15%, and 10 said it is above 15%. Again, only 8 said that their growth rate is negative!

Now I will present you the analysis that is also overwhelming and it is presenting interest which certain percentage of entrepreneurs is showing for cooperation with South in general.

In which markets is your business active, under preparation, interested in exploring, and which markets are not relevant?

18%

3%

31%

48%

South Kosovo

ActiveUnder PreparationInterested InNot Relevant

From 303 entrepreneurs which have answered this question 48% of them i.e. 146 agreed that it is not relevant for them (generally startup businesses, young firms, small-local oriented enterprises). The rest of them, 157 agreed that they are or active on South Kosovo market-18% (No55), or in preparation stage-3% (No8), or

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interested in extending cooperation to the South Kosovo-31% (No94).

More and more are the fact that profits and jobs are beyond the barriers, whether linguistic, or cultural, or religious.

We used the same question for people who are interacting, in business sense, with enclaves in southern Kosovo. This is what we have received:

20%

3%

34%

43%

Serbian Enclaves

ActiveUnder PreparationInterested InNot Relevant

From 300 entrepreneurs which have answered this question 43% of them i.e. 128 agreed that it is not relevant for them (generally startup businesses, young firms, small-local oriented enterprises).

Larger percentage of them, answered positively i.e. 20% of enterprises are active in Serbian enclaves market (No59), 3% is under preparation (No10) and 34% is interested in entering that specific market (No103).

I wanted to show one more statistics, which also coincides with the current topic.

Entrepreneurs were asked what their observations are, i.e. to give us their point of view of the future of this emerging market.

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What is your perception/expectation, how will the relevance of the market s listed below change over next 5 years?

Relevance will strongly in-

crease

Relevance will increase

Relevance will not change

Relevance will decrease

Do not know

12%

56%

22%

10%13%

49%

23%

16%20%

54%

18%

9%

Serbian Enclaves Serbia South Kosovo

After excluding respondents who answered this chapter of questionnaire with do not know, we stayed with 296 interesting answers.

For Serbian enclaves relevance will strongly increase, 12% of them share this opinion, while 56% think the importance of that market will increase. Rather optimistic view of the future, it would seem.

For South Kosovo we also have quite optimistic thinking. Together, we have a 74% expectation that it we will have increase in the importance of the market.

I left in the chart and information on the Serbian market, just for comparison. As you can see, the Serbs in northern Kosovo are more optimistic about the market in the South Kosovo than in the case of the Serbian market.

Those were all presented figures, percentages and graphs but stemmed from field work, months of research.

Military conflict has created a specific market, limited and organized for whose regulation will need time. Meanwhile, multi-ethnic society uses both legal and illegal ways to survive while

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completely forgetting the previous events, their differences and disagreements.

Business and profit is encouraging people to cooperate without prejudice and without conflicts. Everyone is searching for his way-out of this situation in which that same conflict has put them in. Sense and wide open mind in this strange market brings cooperation with the environment, whatever it is. Cooperation brings better performance. Better performance creates healthier and tempting market.

There are still limited people, who do not want to look into the distance, which still are holding for certain codes of behavior and way of thinking. As long as the opinion about cooperation with South continues to be seen as betrayal, progress will be limited, as much as previous information indicated that the existing barriers are slowly fading.

In one of the problems I have dealt with the mission and the influence of foreign bodies. Nobody trusts them and they should not. Only we can together solve this certain situation. As soon we mature, soon it will happen. Time will be the indicator.

3.3 Macro-economic environment in Kosovo; foreign direct investments, corruption

‘’No country with postwar society did not manage to recover with the help of foreign investors, but with its own help and with their own head’’.

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Before analyzing these indicators, we bring to the surface some of the very basic elements of the post-war economy in Kosovo, which also demonstrate the complexity y of the situation. Firstly, the main sector on which the economic boom was based, that is reconstruction, has been short-lived. Housing and infrastructure reconstruction n is now almost over, which means that only a small part of these businesses are still in operation. Secondly, the private sector that has emerged has been dominated by small-scale, low capital-intensive ventures in trade and construction, without any real local manufacturing. Moreover, the fact that economic growth has been transfer-driven, especially by transfers from the international donor community and the Kosovar Diaspora, means that the withdrawal of those actors and the reduction of external funding automatically indicate the lack of capacity of the Kosovar government to contract. Indicative of the situation is the fact that, the average Kosovar household has received more cash income from relatives abroad than they did from working in Kosovo. Furthermore, as the Kosovar budget is heavily dependent on taxing imports at the border, a potential decrease in imports, due to the diminishing development of the post-war reconstruction sector, will automatically lead to the reduction of those income sources as well.

The capacity to attract foreign direct investment is also an important macroeconomic factor for assessing economic development perspectives. In the case of Kosovo we can observe a series of factors that formulate the overall environment for FDIs, though, in our opinion the trends seem to be negative. According to enterprises that are active in Kosovo the main barriers to FDI are corruption and the lack of investment guarantees (Riinvest). Secondly, high taxes are also considered to be an important element that hinders the attraction of FDIs into the province. It is characteristic that less than 50% of active enterprises carry out their tax obligations. Readiness to pay taxes is also very low with only 8.2% of entrepreneurs being ready to pay. The reasons behind such attitudes are based on the high tax rates, the lack of effective control as well as the lack of taxpaying culture. Thirdly, in Kosovo with a population of around 2 million we have a limited market. Besides, the limited access of national minorities to the local markets and services further diminishes the general market,

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which makes the overall endeavor even less attractive for foreign investors.

Likewise, Kosovo is a politically unstable environment which is very much related to the undefined political status of the province. The transition authorities of the UN, acting in parallel with the elected local administration authorities and the government structures, create a complex political environment, in which competences are very often confused and contradictory. The national interests, being represented by the government bodies, are usually opposed to the will of the international authorities and the donor community, as well as the minorities’ representative bodies, thus resulting in political confusion and a complex decision making process with a lot of delays and uncertainties, which is not welcome to potential investors.

Another negative element for the FDI in the area of Kosovo is the lack of a satisfactory regulatory framework for investments as well as a properly functioning legal system.

However, there are several factors that make the overall situation concerning the attraction of FDIs more balanced. It is characteristic that in Kosovo we can identify certain factors that give to the province a competitive advantage in relation to other countries. We can, first of all, notice the combined efforts made by the international donor community to establish an attractive FDI environment, as a prerequisite for the development of Kosovo as well as regional stability and prosperity.

From the above analysis, we can conclude that the FDI environment of Kosovo has certain specificities. But these specificities do not only have a negative role for new FDI. The above elements create the picture of an environment that has the means to attract new FDI but it needs to solve a number of issues in order to be an FDI environment with low risk.

As much this region tried to become attractive to foreign investors, and as much they accomplished those goals, primarily, those investments never went to right people and they have never been distributed properly. Doing market research, working in the field, I have become aware, more or less, about situation associated with donations. Donations were received again by the

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same people, to who help was not over necessary. Donations were not used properly. Investor were providing donation in form of money or in form of equipment. In majority of cases, they did not control progress of business in which they have invested. It provided an opportunity for people spend received money by their desire, without fear of being caught. People were not even using the equipment they received as donation, in many cases they chose to sell equipment meant for development.

In the following chart I will try to make the connection between firms who answered that they have received certain donation from the following institutions; Local Municipality, Chamber of Commerce, the Government of Serbia, USAID, Swiss Agency for Development and Cooperation, the British Embassy, the European Commission, the Government of Kosovo, G.I.Z., Mercy Corps, Business Center, and others, with the changes in the number of workers in past years.

81%

19%

Chart Title

Decrease in No.of employeesIncrease in No. of employees

This chart provides fairly clear information; it provides a clear picture that a minority of entrepreneurs who received the donation, made certain progress i.e. expanded their operations and thereby increased the number of employees.

Only 19% i.e. 15 of surveyed firms, who received certain donation, said that they had increase in number of employees. We had an option in questionnaire to ask what is number of employees hired. Those fifteen firms gave us information that was augmented by only one worker.

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The larger percentage of firms, 81% i.e. 66 of total surveyed firms agreed that after donation they reduced their business operation which was followed by decrease in number of employees.

No matter how illogical it may be, we have stated the facts.

These 81% of surveyed firms, responded positively to the question of whether you would again accept a donation, of any kind!

I need to continue dealing with donations and SME survey done on the North Kosovo, to show you one more interesting connection.

For the following chart I used information from question did they accept any donation in previous time with the question; what is the capacity of your current production?

70%

30%

Production capacityLess than 60% more than 61%

From the entire number of firms, 81 answered that they had received certain help. This chart is presenting us situation in which a certain company with additional financial injection failed to increase its production capacity. Were the donations and grants properly and adequately utilized? Were they the right choice for receiving help? Who decided they are appropriate?

31% reported that after received help their production capacity went above 61%, precisely 24 companies.

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70% reported that after receiving help their production capacity went below 61%, precisely 57 companies.

I have to mention that this is a long-term sponsorship of Kosovo from Serbia and other government has created a non-working society that does not use their own potentials. People in this region are used in a variety of grants, donations which eventually created a seeming secure atmosphere.

In reality that is not the case.

An additional macro-economic factor is corruption. Public perception is certainly an important indicator for measuring the impact of corruption on the Kosovar economy and economic behavior. Twenty per cent (20%) of the public and 25% of surveyed managers believe that the lack of institutional mechanisms of control is a source of corruption. By contrast, the lack of ethics is for both groups a relatively unimportant factor compared to other factors affecting the spread of corruption (Riinvest, 2003). . Corruption has negative effects on business development. Corruption mostly is regarded as an informal obligation (tax) that needs to be paid. Moreover, corruption decreases the efficiency of investments. This takes place because money is spent to overcome difficulties imposed by public officials, instead of financing business needs. Corruption also increases production costs and the enterprises’ expenditure in general, decreasing in the meantime the businesses’ competitiveness in the market.

Perceptions of the impact of corruption are indicated in next part:

Supports unfair competition 25%

Creates an improper environment for business and new investments 22.4%

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Increases business expenditure due to the requested bribes 20.9%

Imposes obstacles for activities due to the poor quality of public services 15.9%

Imposes obstacles for activities due to artificial and bureaucratic delays 15.7%

As we see from this, the surveyed managers believe that the main consequence of corruption is that it harms fair competition. Twenty five per cent (25%) share this opinion. Twenty per cent (20%) consider corruption as a reason for increasing business s expenditure (because of the payment of bribes). A little more than twenty two per cent (22.4%) believe that it creates an inappropriate environment for business and new investment. Finally, it sustains a negative correlation between competitiveness and corruption. Corruption destroys the capacity of the country to produce and sustain competition.

5. ConclusionTrying to summarize all of the above we will always encounter a lack of understanding of the whole of the region and its specific functioning.

I might be repeated in this section, but I think it is worth mentioning.

Military conflict has created a specific market, limited and organized for whose regulation will need time. Meanwhile, multi-ethnic society uses both legal and illegal ways to survive while completely forgetting the previous events, their differences and disagreements.

Business and profit is encouraging people to cooperate without prejudice and without conflicts. Everyone is searching for his way-out of this situation in which that same conflict has put them in. Sense and wide open mind in this strange market brings cooperation with the environment, whatever it is. Cooperation

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brings better performance. Better performance creates healthier and tempting market.

There are still limited people, who do not want to look into the distance, which still are holding for certain codes of behavior and way of thinking. As long as the opinion about cooperation with South continues to be seen as betrayal, progress will be limited, as much as previous information indicated that the existing barriers are slowly fading.

I will be in this case brave enough and maybe too optimistic to guess some better tomorrow.

6. References and bibliography

http://mf.rks-gov.net http://www.cic.nyu.edu/internationalsecurity/docs/Final2008briefingreport.pdf

http://www.un.org/aboutun/charter/chapter8.shtml

www.unmikonline.org/pub/misc/ksip_eng.pdf

http://www.consilium.europa.eu/showPage.aspx?id=1463&lang=en

http://www.eulex-kosovo.eu/home/docs/JointActionEULEX_EN.pdf

www.Euractiv.com.

http://www.unmikonline.org/docs/2008/Fact_Sheet_July_2008.pdf

http://www.osce.org/item/35554.html.

http://www.nato.int/kfor/kfor/objectives.htm.

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