EU ASSISTANCE TO KOSOVO Getting the Economy Going

GETTING THE ECONOMY GOING | 3

SUPPORTING BUSINESSES IN KOSOVO

In 1999, Bedri Kosumi, a farmer from Vushtri municipality, established a small trading company named “Pestova”. Today Pestova is a modern factory for potato products, an exclusive agent for various machinery brands and Agora seeds, and a partner and driving force for many local farmers.

It’s just one of many businesses throughout Kosovo¹ to have benefited from millions of euros invested by the EU. It all started in 2006, when Mr Kosumi decided he needed help with business planning and research and applied to the EU-funded TAM/BAS project.

That stands for Turn Around Management and Business Advisory Service. Shortly after, his company now substantial, he qualified for more intensive support under the TAM. Helped by both, Mr Kosumi developed strong projects that attracted €1.9 million equity financing from the European Bank for Reconstruction and Development to invest in better equipment, and develop new products and markets.

The EU is investing heavily in building Kosovo’s small but highly open economy.

Kosovo has an annual per capita GDP of around €1,500-under half that of any other country in the region, according to the World Bank. Imports account for roughly 60% of GDP. Exports are negligible mainly scrap metal and nickel.

Much of Kosovo’s income consists of remittances from Kosovans abroad and donor assistance. Growth of 3% over the last two years-mostly driven by privatisation and small-scale retail businesses-is too slow to allow GDP to catch up with neighbouring countries. Most important, there’s 40% unemployment, a severe problem that encourages emigration.

Hence there’s an urgent need for economic growth to create more jobs. That’s why Kosovo wants to develop a private sector dominated by small and medium-sized enterprises (SMEs).

¹Under UNSCR 1244/1999

4 | GETTING THE ECONOMY GOING

WHY BUSINESSES NEED SUPPORT

Starting a business is oneof the most challengingthings an entrepreneurcan do. Support helps.

In its Medium Term Expenditure Framework (MTEF) 2008-2010 the Government acknowledges that the establishment and growth of new and small enterprises tends to generate most new employment. So creating conditions for start ups and SMEs to flourish is a priority. The EU is working hard to do just that. Its multi-faceted approach includes providing:

• Easier access to finance • Better training and qualifications for employees and managers • Compliance with international standards, helping firms access markets • A tax system favourable to growth • Procedures and systems ensuring greater transparency, not least in public procurement tenders • Infrastructure that works, and • Support to build central and local governments’ capacity to establish the policies and strategies businesses need to make the most of Kosovo’s main asset-its young people

A survey in 2006 found 50% of start-ups working on their own fail in the first two years, while many more survive if they receive technical and financial support. Established firms need attention too. Surveys and interviews show a majority of existing companies in Kosovo need support in a range of steps required to make them competitive, including:

• Market research and business plans • Reorganisation and restructuring • Establishment of financial systems • Implementation of EU standards • Strategic planning

That’s why, over the past decade, the EU has funded a number of projects providingdirect support to businesses. These are of two types.

SMEs GENERATE THE MOST NEW JOBS

GETTING THE ECONOMY GOING | 5

GETTING THEM STARTED

The micro enterprises alone created 1500

full-time jobs and 1014 seasonal or part-time job

opportunities.

The first type of project focused on providing direct grant support-non-returnable funding-to promote growth in poor and marginalised regions. Projects included:

› The Community Stabilisation Programme (CSP). Originally targeting 18 villages in 10 municipalities, by 2008 it covered over

200 villages in 23 municipalities, focusing mainly on minority communities. CSP supported 648 micro-enterprise projects, typically buying equipment allowing entrepreneurs to set up small businesses-anything from beekeeping to upholstery workshops or electrical appliance repair shops. CSP also helped fund 165 community projects in small communities lacking facilities such as a minibus service or a water network.

› Poverty Alleviation for Marginalised Municipalities (PAMM). Though similar to CSP, this €3 million project targeted the most vulnerable

communities, regardless of ethnic origin. Between 2006 and 2009, PAMM issued grants to 211 individuals and 19 communities. Assistance was also offered through Regional Business Centres (RBCs). These offer free internet services; help develop business proposals and research markets; provide training and marketing and product-promotion services. PAMM also organised a business fair for grant recipients and stakeholders.

› The Fund for Agro-Processing & Industrial Revitalisation (FAIR). Starting in 2007, FAIR supported substantial manufacturing, agro-processing or

service firms with growth, export or import-substitution potential in Kosovo’s five northern municipalities. New and expanding businesses received business advice and €50,000-200,000 grants for new investments, as long as they provided 25% of total value themselves. More than €2.3 million was awarded to 17 beneficiaries, with €5.3 million in investments mobilised. Products included sausages, furniture production, egg cartons (from recycled paper) and prescription lenses. Eight of the firms now offer products which were previously imported.and prescription lenses.

› The Support to Job Creation Programme Launched in 2006, this project spent €5 million to create job opportunities in

Mitrovica and Zveçan/Zvečan municipalities by establishing new or expanding existing businesses. Grants were used to refurbish existing facilities and equipment and provide new infrastructure facilities, mostly for SME scheme development. Projects supported included construction of: small business production sites; a cattle market; a multiethnic market and business park in Mitrovica South; a kiosk market and riverbank development in Mitrovica North; and a business complex and international wholesale market in Zveçan/Zvečan municipality.

6 | GETTING THE ECONOMY GOING

Helped with every aspect of the fashion business

The second type of project to support businesses focused more on providing expert help than grant financing and was open to firms in any region. These projects aimed to promote enterprise growth, modernisation and employment by targeting key companies, especially those with export potential. Important projects include:

› Business Advisory Services (BAS) This allows firms to access local consultancies help, for instance with market

research analysis, brand development, or introducing quality management systems. The EU bears 50% of the cost. As of 2010, BAS has already assisted some 252 companies in Kosovo.

› Turn Around Management (TAM) By 2010, Pestova was just one of 45 Kosovo firms that had benefited. Only

available to companies with at least 50 employees, a €1 million annual turnover and viable growth potential, TAM aims to ensure their development-or survival-via improved performance, expanded markets and enhanced competitiveness. Firms can receive long-term free advice from international consultants.

Project support usually includes: • Developing sales and marketing strategies • Exploring export opportunities • Restructuring the organisation, and • Attracting finance

Krenare Rugova, one of Kosovo’s top young designers received a grant of over € 100 000 worth of sewing machines. But she was particularly enthusiastic about the advice she received from the international experts.

“I learned so much in particular from the second one”, she admits. He taught her not only about fabrics and sewing techniques and how to train her sewers, but also how to price, how to organize her production lines, how to organize her collections. “He helped me with simply every aspect of the trade”, she said.

Today her collections are a big hit at home, and gradually also abroad. First in Europe, and now also in Canada.

BRINGING IN THE EXPERTS

"We would definitely recommend TAM/BAS to other companies... and to everyone who wants to compete in the regional market", says Butrint Batalii, general manager of IVOVA.

FEW ARE EXPERT IN ALL AREAS OFBUSINESS

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Access to skilled busi-ness support agencies and

training is also vital

But to grow a business and compete in a global economy, you need more than direct aid. You also need good policies.

Policies at national level that, for example: • Enforce a legal framework that allows businesses to compete and to modernise their technology • Provide better business support services • Develop a culture of entrepreneurship • Provide assurance of product quality and • Ensure access to finance at competitive rates

The government recognises this. And the EU is helping. It has spent €3 million on “capacity building” in Kosovo’s Ministry of Trade and Industry (MTI). That has meant making MTI better able to get the right policies, strategies, laws and regulatory framework in place, thus improving SME competitiveness and aligning Kosovo with the European Small Business Act. It has also meant talking at every stage to private sector institutions, sectoral business associations and SMEs, to ensure the real needs of business are taken into account.

But the regional level is also important for creating a supportive environment for business. That’s why, in 2008, the EU helped set up five inter-municipal Regional Development Agencies in Kosovo.

Supported by the EU’s Regional Economic Development (RED) project, the RDAs have developed regional growth strategies, analysing local needs and consulting with local partners. They have also worked with local partners to help design projects. With €7.4 million of EU RED funding available in 2010, those approved so far include projects to: establish business incubators to support local entrepreneurs; develop tourism potential; and set up agricultural collection centres allowing farmers to store, cool and process produce for sale throughout the year, rather than selling it in season at rock bottom prices.

The RDAs also help local partners make funding proposals under other EU projects-for instance, the Rural Development project.

GETTING THE BUSINESS ENVIRONMENT RIGHT

GETTING THE ECONOMY

GOING

GETTING THE ECONOMY

GOING

10 | GETTING THE ECONOMY GOING

The World Bank’s 2009 Enterprise Survey shows 28% of Kosovo’s large firms see labour skill shortage as a constraint. To attract investments providing skilled jobs and good incomes, Kosovo needs a well-educated and well-qualified workforce. The EU is working on that too. It has poured resources into improving the quality of schools and education, including schemes to align qualifications and standands with international norms; build Ministry of Education capacity; modernise curricula and syllabi; and develop teacher-training skills. But it has also taken initiatives directly addressing the skills needs of business, including development of:

• Entrepreneurship training in Vocational Education Training (VET) schools • Schools Internships and training programmes to help increase the skills and attractiveness of unemployed people and • In-house training to improve the skills of those already employed

A long-term, but necessary, initiative is KOSVET V, which supports development of a system of quality assurance, accreditation and qualifications, particularly in Vocational Education and Training. This will help ensure Kosovo national qualifications are compatible with the European Qualifications Framework (EQF) and that worker skills are recognised here and abroad.

A more recent example is KOSVET VI, a project aiming to help unemployed young people. One way is providing three months’ on-the job training in firms willing to host them. Trainers were both local and international. Both trainees and firms benefitted from trainings tailored to the needs of the company. KOSVET VI also provides a 20-day training programme for unemployed people who want to set up their own businesses, giving them the basics of marketing, sales, finance, and business planning. That’s important: many people start businesses without a plan, while proper planning vastly improves survival chances.

DEVELOPING SKILLS

AGRICULTURE - A SPECIAL CASEA €2 million Food Safety twinning project enhanced the commercial and export potential of the agricultural and agribusiness sectors by improving controls on animal health, food safety and quality, in line with EU standards and technical requirements. The project brought the previously fragmented food control institutions under one umbrella and made regulations more coherent and efficient. Previously different standards for food safety were applied that resulted in duplication, inconsistencies and confusion.

In all it is expected that the food industry will increase local consumption and exports as food products from Kosovo satisfy health and food safety requirements. The project will also help increase rural employment; reduce the risk of food borne diseases and improve the animal health control system. Moreover, thanks to tighter controls there will be less risk of animal diseases spreading and of expensive compensation claims.

GETTING THE ECONOMY GOING | 11

Investors ask: Will there be power outages?

Support to Infrastructure includes the right strategies, policies and laws But skilled workers and entrepreneurial management aren’t enough. You need good infrastructure too. Potential investors will ask: Will there be power outages? How good are the roads? Can I access markets across the border? The EU has helped out a lot here as well.

For instance, it has invested €430 million to give Kosovo a reliable power system in the last decade. This has covered everything from emergency repairs and refurbishment of power plants, coal mines, and district heating systems, through massive transmission system investments and winter imports in 1999 and 2000, to improving billing and revenue collection, promoting energy efficiency and training auditors. Result: today, energy supplies can be considered reliable.

The EU has also invested in rebuilding roads and bridges and in improving border crossings. Kosovo is a small country, a large portion of which is close to a border. Where good cross border cooperation exists, borders represent opportunities. Where it doesn’t, they tend to mean stagnation. For this reason the EU has established a Cross Border Cooperation programme to promote and establish cooperation and socio-economic integration with neighbouring countries.

BETTER REGULATION AND LESS RED TAPEThere’s “infrastructure” of a legal and administrative kind, too. And for SMEs to flourish it must work smoothly, fairly and cleanly. That means:

• A court system that resolves disputes impartially, quickly and decisively, and then enforces its decisions effectively • An administrative and judicial appeals system that works quickly • A public procurement system awarding contracts fairly and transparently • Customs and taxation systems that are efficient and run on the basis of clear regulations • Administration that doesn’t involve too much red tape • Legislation that is internally consistent

INFRASTRUCTURAL SUPPORT

A SUPPORT TO INFRASTRUCTURE INCLUDES THE RIGHT STRATEGIES, POLICIES AND LAWS

12 | GETTING THE ECONOMY GOING

REDUCING OBSTACLES TO SUCCESS

Obviously Kosovo has some way to go. The World Bank’s recent Enterprise Survey of 270 Kosovo businesses showed only 45% saw the courts as impartial while 73.4% saw corruption as a major constraint, as against 33% in the region as a whole. But efforts are underway. And the EU is doing its bit. One notable example is the Support to Kosovo Judicial Council project, which has developed EU-inspired procedures to establish competence and moral rectitude, then used them to vet all judges and prosecutors.

The successful completion of the Reappointment Process marked a new chapter for the Kosovo judiciary and prosecution service. The direct involvement of five Kosovan judges and prosecutors in the work of the Independent Judicial and Prosecutorial Commission (IJPC) ensures that the selection process for judges and prosecutors in the future will be carried out on the basis of established procedures. Other EU-financed projects concern:

› Support to Local Government: This includes training of local government and a systematic examination forconsistency of the 94 laws they have to enforce.

› Support to the Customs and Taxation Administrations:One project in this sphere is aimed at bringing these Kosovo institutions into line with EU standards of efficiency, transparency and user-friendliness. Measures include: simplifying import/export procedures and customs formalities; applying modern techniques-intelligence and information gathering, risk assessment, etc-to combat smuggling and organised crime at the borders; helping set up a Tax Fraud Investigation Unit.

› Support to Anti-Corruption Institutions: This project has contributed to the drafting of key legislation in the National Anti-Corruption Framework. This includes four laws currently in draft-those on the Anti-Corruption Agency, on Declaration of Assets, on Conflict of Interest, and on Political Party Financing. The project also helped with amendments to relevant articles of the Kosovo Criminal Code.

Kosovo is a smallcountry, a large portionof which is close to aborder. Where goodcross border cooperationexists, borders representopportunities.

Where it doesn't, they tend to mean stagnation. For this reason the EU has established a cross border cooperation programme to promote and establish cooperation and socioeconomic integration with neighbouring countries.

GETTING THE ECONOMY GOING | 13

ADOPTING INTERNATIONAL STANDARDS

› Meeting EU Standards in Public Procurement:This is a project worth €1.9 million to assist in developing Kosovo’s public procurement system, ensuring transparency and compliance with current EU standards. That’s not just a moral question. If bribes determine who wins a tender, the resulting contractor isn’t necessarily the best candidate-and will often recoup payments by cutting corners on the project.

› Development of A Measuring, Standardisation, Testing And Quality (MSTQ) Framework:This project has supported the Ministry of Trade and Industry in developing the institutions in charge of checking the quality of the products and their reliability. Kosovo has adopted several European standards, aligned the Construction Products Regulation with the EU requirements and thanks to the EU, laboratories are capable of checking the reliability of certain measures (liters, kg… etc) of products.

› Assistance to the Industrial Property Office and Copyright Office:This project is contributing to the alignment of the current legislation in Intellectual Property Rights with the requirements of any trading partner for an effective trading agreement. This project is supporting not only the development of the Industrial Property Right Office within the Ministry of Trade and Industry but also has helped in the establishment of the Copyright Office within the Ministry of Culture, Youth and Sports.

› Support to Investment and Export promotion. Exports make almost no contribution to Kosovo’s GDP. That needs to change: a good balance of trade is vital to any economy. To achieve it, trade, investment and export promotion are all needed. To this end a number of projects have been supported, including:

› Investment Promotion designed to strengthen the institutions promoting domestic and foreign investment. The project has included work to build a strong and effective “one stop shop” Investment and Export Agency and facilitate direct contacts between Kosovo business and foreign partners. This resulted in at least 20 sustainable investments and partnerships between Kosovo and EU member state companies.

› Further Development of Kosovo’s Trade Policy which will help align trade policies with international rules and practices.

LOOKING FORWARDThe economic infrastructure has come a long way since 1999. It has a long way to go, but it is a journey it will not make alone. In the future as in the past it can count on strong support from the European Union.

"This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of European Commission Liaison Office to Kosovo and can in no way be taken to reflect the views of the European Union."

CONTACTEuropean Commission Liaison Office to Kosovo

A. Kosovo Street 1 (P.O. Box 331)Pristina, KOSOVO

T. +381 38 51 31 200 F. +381 38 51 31 304

E. delegation-kosovo@ec.europa.eu

W. www.delprn.ec.europa.eu