paving the way for better business in kosovo · 2018. 5. 24. · paving the way for better business...

PAVING THE WAY FOR BETTER BUSINESS IN KOSOVO

What are the growth obstacles for business in Kosovo?

Prishtina, April 2016

Edition 2

PAVING THE WAY FOR BETTER BUSINESS IN KOSOVO

What are the growth obstacles for business in Kosovo?

TABLE OF CONTENT

Executive Summary ……………………………………………………………………………………………………..… 7

1. Introduction and justification …………………………………………………………………………...…..… 9

2. Obstacles outside the company ………………………………………………………………….…...…..… 10

2.1 Top ten obstacles for business activity in Kosovo

2.1.1 Top ten obstacles (differences between the year 2014 and 2015) ……….…………. 11

2.2 Overview of obstacles for businesses; economic environment ………………………………… 11

2.2.1 Overview of obstacles for administrative and regulatory conditions …………….. 13

2.2.2 Overview of obstacles for infrastructure and general conditions ………………….. 15

2.3 Obstacles by sector ……………………………………………………………………………………………… 16

2.4 Obstacles by firm size ……………………………………………………………………………….…………. 17

3. Internal obstacles ……………………………………………………………………………………….………...…. 18

3.2 internal factors by sector ……………………………………………………………………..……………… 19

3.3 internal factors by size class ………………..………………………………………………..……………… 20

4. Company trends …………..………………………………………………………………………….……………… 21

5. Case study …………….……….………….………….………….………….………….………………………………. 28

6. Conclusions (and recommendations) …………………………………………………………………….. 30

7. Methodology …………………………………………………………………………………………………………… 33

Appendices ………………………………………………………………………………………………………………… 34

4 PAVING THE WAY FOR BETTER BUSINESS IN KOSOVO

PAVING THE WAY FOR BETTER BUSINESS IN KOSOVO 5

Dear friends and colleagues, Following our quarterly Business Climate Survey, the Kosovo Chamber of Commerce now did for the second year in a row a bottleneck study on factors impeding growth of the Kosovo economy.

There is no kind of this study for Kosovo. It not only charters factors outside the companies, but also sheds light on factors inside the company, both hindering growth. It is the only study of this type, now well-known and highly valued at international level. It provides valuable information regarding business barriers as indicated by the business sector, for current and future development.

The Kosovo Chamber of Commerce through this study aims at influencing the debate and measures for stimulating growth of the Kosovo companies, and establishing an enabling business environment. This study was conducted for the second time, again with the support of GIZ.

Kosovo Chamber of Commerce throughout its activities aims to increase the general level of awareness of the society about the value of entrepreneurship that Kosovo possesses. The Kosovo business community has an important role to play in creating these internal values and place them in the regional and international market. A thriving and growing Kosovo private sector impacts improvements in the economic welfare and society in general. It will likewise contribute to an improved image of our country and attract foreign investors through various forms of partnership.

This publication will be distributed first of all to all the companies who participated in the study, all governmental institutions, business organizations, diplomatic offices, donor organizations and all other stakeholders who directly or indirectly influence and contribute to the promotion of economic activities of Kosovo.

Sincerely yours,

Safet Gërxhaliu President


EXECUTIVE SUMMARY

Every quarter, the Kosovo Chamber of Commerce (KCC) publishes a business climate survey. This is an ongoing survey and since beginning of 2013, 12 such surveys have been done. This business climate survey gives useful information; however it not yet identifies the underlying factors that indicate the perception of the climate by the companies. Therefore, now the Kosovo Chamber of Commerce adds a research study to identify the major obstacles that are hindering smooth operation of the companies. The possible obstacles can be outside and internal of nature. Outside obstacles can be of the following:

- economic environment, - administrative and regulatory conditions - and infrastructural of nature.

Internal obstacles are related to managerial and operational issues. For most companies, the major external obstacle is the cost of labor with 51.7%, followed by liquidity problem with 44.9% and cost of bank financing with 37.1%. Unlike last year when the cost of energy was presented as the major obstacle (57%), this year the cost of energy is ranked in the 10th place, respectively 32.5% of the companies declared cost of energy to be their biggest obstacle which is still a considerable share. Tax system and customs regulations are ranked this year as major obstacles, respectively tax system with 37.1% and customs regulations with 36.6% of the interviewed companies. The political instability (23.1%) is not mentioned this year as a major problem, 12.4% less declare political instability to be a problem, compared to previous year (35.5%). Internal obstacles played a smaller role. For 31.3% major internal obstacle is “no marketing strategy is developed”. This is a symptom of a “tradition” developed in Kosovo for “no need of a marketing strategy”. Retail (29%) and Services (24%) reported more problems in regard to marketing strategy then the others, and construction and wholesale less. Large companies did significantly develop marketing strategies and small and micro less. About 62% of the companies participating in the survey indicated that sales would go up in 2016. Around 50% expect the investment will rise in 2016 compared to 2015. A question related to economic dynamics gave a striking 88% of the companies indicated that they had gained new clients in 2015, 13% more than in the year 2014. This is a sign of a significant dynamism in Kosovo economy. The study ends with a number of conclusions and recommendations. These can address the most striking external and internal obstacles, by creating an enabling environment in which


companies can operate more smoothly and are assisted to overcome or cope with external and internal obstacles. Special consideration was given to marketing planning and quality. These aspects were neglected by those companies that had more obstacles. It is recommended to start a nation-wide marketing and quality awareness and training, embedded in strategic plan. The network of the KCC can be an important asset for that.


1. INTRODUCTION AND JUSTIFICATION

A vibrant private sector is crucial for the success of an economy. Businesses employ people and make investments. Thriving, or even better growing business contributes to the economy in a major way. Therefore it is important to understand which factors are hindering businesses in their activity. In a transition economy the economic environment for businesses is changing rapidly. Understanding factors hindering business activity at one point in time is important, and this is what the Kosovo Chamber of Commerce is doing right now with the business survey on obstacles for business. But also to monitor the environment over time, at least on an annual rhythm, is important. With time comparisons, the change of the economic environment can be analyzed and any improvement or worsening can be detected. Hence, to do this survey on an annual basis – which is intended and this is the second of such survey - will even be better.

This survey sheds light on the problems, as perceived by businesses. Differently from several ad-hoc-surveys related to this topic not only bottlenecks in the outside-world of the companies (e.g. infrastructure, taxes, access to finance etc.), but also problems originating on the company level (like quality of products/ services, lack of distribution channels, lack of adequate software etc.) are monitored.

The results of the second survey of this new type are presented in this report. The data are split according to the sector the company is working in and the size of the company.

KCC provides a progress report about external and internal obstacles companies are facing in doing business. This information will help all economic agents – economic policy as well as management by itself - to implement measures to improve the business environment.

The results presented in this report are based on a large business survey. The Kosovo Chamber of Commerce developed a questionnaire and implemented the survey. The KCC has received for this purpose financial support from the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and methodological support the external expert, Klaus Abberger (ETH Zurich). The survey was conducted through personal interviews in the time between 17th of January and 5th of February. Kosovo Chamber of Commerce for the purpose of the study has interviewed 308 companies. The survey reflects the situation of the companies during the year 2015.

The report starts with the external obstacles as seen by the companies followed by the internal factors impeding business. The second main topic deals with the planned investment and expected sales for 2016.

The results were analyzed by sector and by size. For size, micro is for 1 – 2 employees, small from 2 to 10, medium from 10 to 50, and large 50-100 and over 100 employees.


2. OBSTACLES OUTSIDE THE COMPANY As in the previous year, for the aims of the study, three different types of external factors were researched. The first one was directed to infrastructure and general conditions, the second on economic environment and the third on administrative and regulatory condition.

2.1 Top ten obstacles for business activity in Kosovo The research listed as the top ten obstacles, the following:

It is remarkable that the most pressing obstacle for this year is “cost of labor” with the highest percentage of about 51.7%, followed by “liquidity problem” with 44.9% and “tax issues”, respectively in regard to the taxing system, high rates of the tax system in Kosovo, administration procedures etc. with about 37.1%.

Compared to the last year, were the “cost of electricity” was the biggest obstacle, this year the percentage of this obstacle has dropped for about 24.5%, from 57% to now 32.5% ; this doesn’t mean that the cost of electricity is not anymore an issue, this is a sign that Kosovo companies perceive electricity problems as less problematic. KCC does not believe that problems have become smaller, but assumes that the companies have managed to organize themselves in a way to cope with the problem, e.g. installing generators etc.

KCCs opinion is confirmed correct by the majority of the companies (88%) that stated that they did not notice any positive impact from KEDS investments.

32.5

33

34.9

35.3

35.5

36.6

37.1

37.1

44.9

51.7

0 20 40 60

Cost of electricity

Legal environment (e.g enforcing contracts)

Social security dues

Profitability is too low

Adequate laws

Customs regulations, procedures, bureaucracy

Cost of bank financing

Tax system (e.g. rates, administration, procedures)

Liquidity problems

Cost of labour

Top ten obstacles


2.1.1 Top ten obstacles (differences between the year 2014 and 2015)

2.2. Overview of obstacles for businesses; economic environment In the category economic environment the three main problems were: cost of labour (51.7%), liquidity problems (44.9%) and cost of bank financing (37.1%). Compared to the previous year, it seems that in regard to economic environment obstacles, “cost of labour” has become the largest problem, in percentages it rose from 15.2% last year to 51.7% this year.

The Ministry of Trade and Industry indicates that is has a policy to stimulate enterprises to join the “real economy”. They claim that this is having an impact. Should this be true, it could explain why “cost of labour” is now the major obstacle.

As in the Business Climate Index for the last quarter of the year 2015, the “cost of bank financing” seems to be a continuous problem for our companies. 54% small sized companies said this was the biggest obstacle in regard to the economic environment barriers; retailing (38%) sector stated cost of bank financing to be the major obstacle, followed by the manufacturing sector (27%) and service (24%) sector.

32.5

33

34.9

35.3

35.5

36.6

37.1

37.1

44.9

51.7

57

22.2

23.8

18.7

21.3

38.1

23.9

14.5

15.2

0 10 20 30 40 50 60

Cost of electricity




Adequate laws




Liquidity problems

Cost of labour

Top ten obstacles 2015

Year 2014 Year 2015


This year, “lack of skilled labor force” came up as an obstacle of the businesses for around 26% of the interviewed companies of the manufacturing and retailing sector and mostly for the smaller sized companies (33%). This obstacle has become bigger.

16.7

18.3

20.7

23.7

23.9

24.4

24.4

26.2

26.3

30.7

32.3

37.1

44.9

51.7

0 10 20 30 40 50 60

Applicants lack basic competences

Staff turnover

Reluctance of job applicants to move in search of…

Lack of qualified staff

Reluctance of job applicants to perform certain…

Unfair competition by grey economy

Lack of capacity and equipment

Lack of skilled labour

Lack of applicants with management skills

Insufficient demand

Other economic issues


Liquidity problems

Cost of labour

Obstacles: Economic environment

24.4

24.4

26.2

30.7

32.3

37.1

44.9

51.7

32

15.2

14.3

24.3

18.9

38.1

14.5

15.2

0 10 20 30 40 50 60

Unfair competition by grey economy


Lack of skilled labour

Insufficient demand

Other economic issues


Liquidity problems

Cost of labour

Obstacles: Economic environment in years

Year 2014

Year 2015


Economic environment: Cost of labour

Total Major

obstacle

Moderate

obstacle No obstacle

Does not

apply

The number

of

employees

of our firm

is currently

<2 12 5 13 3 33

2 to <10 68 22 43 5 138

10 to < 50 42 15 9 0 66

50 to < 100 9 5 7 0 21

100 and

more 7 0 4 0 11

Total 138 47 76 8 269

Economic environment: Liquidity problems

Total Major

obstacle

Moderate

obstacle No obstacle

Does not

apply

The number

of

employees

of our firm

is currently

<2 15 3 11 3 32

2 to <10 54 13 66 3 136

10 to < 50 35 11 16 0 62

50 to < 100 12 3 9 0 24

100 and

more 3 0 7 1 11

Total 119 30 109 7 265

2.2.1 Overview of obstacles for administrative and regulatory conditions

This category contains some of the most important obstacles companies are facing currently. First of all was mentioned “cost of labour” and “liquidity problems”, followed by “tax system” and “customs regulations and procedures”. Relatively most important problems in this category found to be: tax system, customs regulations/ procedure and bureaucracy, adequate laws and social security duties.


Compared to the last year, for this year taxing system of Kosovo appears to be among the biggest obstacles. 13.2% more companies have ranked this year tax system as the major obstacle; 15.3% more than previous year for the customs regulation; and 16.8% more for the lack of adequate laws in force.

With the growth of above mentioned factors it seems that the “real economy” is showing up.

9.9

11.7

16.3

25.2

26.1

29.1

33

34.9

35.5

36.6

37.1

0 5 10 15 20 25 30 35 40

Access to land

Construction permissions

Protection of intellectual property rights

Other administrative or regulatory issues

Business information

Labour regulations



Adequate laws



Obstacles: Administrative and regulatory conditions

9.9

11.7

16.3

25.2

26.1

33

35.5

36.6

37.1

14.7

19.6

17.5

11.7

15.6

22.2

18.7

21.3

23.9

0 5 10 15 20 25 30 35 40

Access to land



Other administrative or regulatory issues



Adequate laws



Obstacles: Administrative and regulatory conditions in years

Year 2014

Year 2015


2.2.2 Overview of obstacles for infrastructure and general conditions In general it can be stated that, based on the results of the study, this type of obstacle does not rank amongst the most important problems of companies in Kosovo. In this category “cost and reliability of the electricity”, “crime” and “corruption” are stated mostly.

Compared to the last year, businesses have declared “crime” to be a major obstacle for 32.5%, respectively 6.7% more than in the year 2014. The perception for “corruption” has dropped for about 10%, in percentage this year only 24% of the companies have mentioned corruption as a major obstacle.

15.4

19.6

20.5

21.4

23.1

24

31.5

32.3

32.5

32.5

0 5 10 15 20 25 30 35

ICT infrastructure

Roads

Water supply

Transport

Political instability

Corruption

Reliability of electricity

Other infrastructure or general issues

Crime (e.g. theft, robbery, vandalism)

Cost of electricity

Obstacles: Infrastructure and general conditions

20.5

21.4

23.1

24

32.3

32.5

32.5

25.9

15.2

35.5

34.6

14.5

25.8

57

0 20 40 60

Water supply

Transport


Corruption


Crime (e.g. theft, robbery, vandalism)

Cost of electricity

Obstacle: Infrastructure and general conditions in year

Year 2014

Year 2015


2.3 Obstacles by sector Looking at the companies by sectors, we cannot report significant differences in major obstacles, which means major obstacles are valid for every sector. However, some differences regarding the type of obstacles are visible. Construction companies often complain about administrative and regulatory obstacles like the access to land. They also complain more often about labour regulations than for example manufacturing firms. Service firms complain about the lack of adequate laws. Regarding infrastructure and general conditions, construction firm complain about poor roads and about reliability of electricity. Services firms suffer more from the cost of electricity. Regarding the economic environment firms in all sectors have huge problems with high labour costs. Also liquidity is a problem in most of the sectors. Manufacturers and construction firms are often confronted with an inadequate educated workforce.

0 10 20 30 40 50 60 70 80 90 100

Infrastructure and general conditions:

Reliability of electricity

Water supply

Corruption



Insufficient demand

Cost of labour

Staff turnover

Reluctance of job applicants to perform certain types of…

Applicants lack basic competences



Administrative and regulatory conditions




Labour regulations


Obstacles by Sector

Construction Manufacturing Retailing Wholesale Services


2.4 Obstacles by firm size According to firm’s size, micro firms (up to two employees) tend to report a significant lower number of major obstacles than the other firms. Regarding administrative and regulatory conditions micro firms often complain about social security dues. Regarding the economic environment micro firms do not have many problems with labour costs. Labour costs are a problem for medium sized and large companies. For micro companies cost of electricity is another problem whereas for large firms reliability of electricity is more problematic.

0 10 20 30 40 50 60 70 80 90 100

Infrastructure and general conditions: Cost of electricity

Reliability of electricity Roads

Water supply ICT infrastructure

Corruption Crime (e.g. theft, robbery, vandalism)

Political instability Transport

Other infrastructure or general issuesEconomic environment

Insufficient demand Lack of skilled labour

Cost of labourInadequate educated workforce

Staff turnover Reluctance of job applicants to move in search of work

Reluctance of job applicants to perform certain types of work Lack of applicants with management skills

Applicants lack basic competences Liquidity problems

Cost of bank financingUnfair competition by grey economy

Lack of capacity and equipment Other economic issues

Administrative and regulatory conditions Access to land

Construction permissions Legal environment (e.g enforcing contracts)

Protection of intellectual property rights Customs regulations, procedures, bureaucracy

Tax system (e.g. rates, administration, procedures) Adequate laws

Labour regulations Social security dues

Business information Other administrative or regulatory issues

Obstacles by Size

Micro Small Medium Large


3. INTERNAL OBSTACLES In chapter three obstacles inside the company are discussed. However, problems for companies arise not only from obstacles having their origin inside the company, but also from problems in the industry regarding national economic policies. Among the problems most often mentioned rank “profitability is too low”, followed by “no marketing strategy is developed”, and “quality of products/services is often not competitive” on top. This type of issues might be a symptom of other deficiencies within the company. Companies of the retailing sector (21%) of the small size class seem to have lower profitability compared to other sectors.

Compared to the year 2014, in 2015 internal obstacles have been mentioned more often by the interviewed companies. Although this internal obstacles have grown, they are less significant compared to other mentioned obstacles.

22

23.8

27.1

30.9

31.1

31.3

35.3

0 5 10 15 20 25 30 35 40

Financial reporting is underdeveloped

Not enough investment in training of own staff

No adequate business planning is installed

No functioning human resources management

Quality of products/services is often not competitive

No marketing strategy developed


Obstacles: Internal factors in your industry

23.8

27.1

31.1

35.3

20.3

16.6

19.6

23.8

0 5 10 15 20 25 30 35 40

Not enough investment in training of ownstaff


Quality of products/services is often notcompetitive


Obstacles: Internal factors in your industry in years

Year2014Year2015


3.2 Internal factors by sectors In the construction industry companies reported that marketing strategies are often lacking. In manufacturing firms report relatively few internal factors. The more striking ones are that products are not competitive and that the profitability is low. Profitability seems also to be a problem for retailers and manufacturers.

0 10 20 30 40 50 60 70 80 90 100

Internal factors in your industry:








Internal Obstacles by Sector

Construction Manufacturing Retailing Wholesale Services


3.3 Internal factors by size class Especially large companies assess the quality of products/services of their respective industries as a major problem. They also believe that in their industries, companies invest too little into the training of staff. Small, medium sized and large companies see the profitability as a major problem. This is less the case for micro firms.

0 10 20 30 40 50 60 70 80 90 100

Internal factors in your industry:








Internal Obstacles by Size

Micro Small Medium Large


4. COMPANY TRENDS Companies interviewed in the survey showed in 2015 the following level of sales.

Sales in 2015 are estimated to have been satisfactorily. Around 36% of the companies said they sold their products between € 50 000 to € 500 000. Sales expectations for 2016 predict higher sales compared to the sales carried out in the 2015 by the companies.

9.4

32.935.9

21.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Below 10 000 10 000 to 50 000 50 000 to 500 000 More than 500 000

What were your sales in 2015 (in EUR)?

7.0

32.2 33.9

26.8

0

5

10

15

20

25

30

35

40

Below 10 000 10 000 to 50 000 50 000 to 500 000 More than 500 000

What are your estimates for sales in 2016 (in EUR)?


In regard to sales expectations for 2017, small sized companies have the highest expectations.

All surveyed sectors expect their sales to increase in 2017, some less and some more, however, the trend remains significantly positive, especially for retailing, manufacturing and service sector. KCCs quarterly “Business Climate Index” will keep track of realization of these expectations.

18

90

51

14

12

18

58

19

14

0

1

3

1

1

0

0 10 20 30 40 50 60 70 80 90 100

<2

2 to <10

10 to < 50

50 to < 100

100 and more

What are your expectations for sales, for the next year, 2017?

Going down Remain the same Going up

49

60

21

12

44

2

0 10 20 30 40 50 60 70

Manufacturing

Retailing

Wholesaling

Construction

Services

Other

What are your expectations for sales, for the next year, 2017?

Going down Remain the same Going up


When asked for the new clients gained during the year 2015, about 88% of the entrepreneurs stated that they gained new clients. In terms of new costumers, retailing sector has gained the highest number of new clients with more than 10% compared to the last year.

Small sized companies have gained more new clients for more than 10%, followed by medium size class companies. The situations appear to be very positive for all sectors and different size classes.

88%

12%

Did you gain new clients during this year?

Yes

No

34

50

12 11

33

1

31

39

17

7

30

10

10

20

30

40

50

60

Manufacturing Retailing Wholesaling Construction Services Other

New clients_by sector

Less than 10%

More than 10%


Interviewed companies declared that they invested significantly in 2015. Small sized companies mostly stated they increased they investment in 2015 compare to 2014 for about 54%.

20

77

27

13

2

11

4842

1310

0

10

20

30

40

50

60

70

80

90

<2 2 to <10 10 to < 50 50 to < 100 100 and more

New clients-by size class

Less than 10%

More than 10%

43.6

51.7

4.4

0

10

20

30

40

50

60

Increased Remained unchanged Decreased

How did the investments of your firm evolve in the year 2015 compared to 2014? They


Regarding sectorial investments, retailing sector has invested more, followed by manufacturing and service sector.

10

54

41

14 11

22

87

27

14

13 6 40 0

0

10

20

30

40

50

60

70

80

90

100

<2 2 to <10 10 to < 50 50 to < 100 100 and more


Increased

Remained unchanged

Decreased

3338

22

10

26

36

56

9 10

42

36

1 03

0

10

20

30

40

50

60

Manufacturing Retailing Wholesaling Construction Services

How did the investments of your firm evolve in the year 2015 compared to 2014? By sector

Increased

Remained unchanged

Decreased


When asked for the investment expectations for 2016, companies share the percentages between increases and remain unchanged. A very symbolic number of companies (2%) expect investments to decrease.

Still, retailing, manufacturing and service sector expect investments to increase in 2016. Small sized companies, followed by medium-sized expect higher investments in this year.

49.5 48.5

2.00

10

20

30

40

50

60

Increase Remain unchanged Decrease

What do you expect, how will the investment of your firm develop in the year 2016 compared to 2015? They will

38

52

18

10

3233

51

1310

40

1 3 1 0 10

10

20

30

40

50

60

Manufacturing Retailing Wholesaling Construction Services

How will the investment of your firm develop in the year 2016 compared to 2015? By sector

Increase

Remain unchanged

Decrease


32.9% of the companies participating in the survey declared they will invest in improvement of the quality of the products/services; followed by the willingness to replace old machineries and equipment with the new ones or even modernize existing assets.

14

68

46

13 10

24

78

26

15

205

1 0 00

10

20

30

40

50

60

70

80

90

<2 2 to <10 10 to < 50 50 to < 100 100 and more

What do you expect, how will the investment of your firm develop in the year 2016 compared to 2015? By size class

Increase

Remain unchanged

Decrease

31

19.4

32.9

17.9

8.8 10

0

5

10

15

20

25

30

35

Replacement of oldequipment,

modernizing existingassets

Expansion ofproduction/service

capacity in new fieldsof

production/services

Improve quality ofproducts

Improve productivityof operations

Energy measures Transport capacity

Investments planed for 2016, will be of this kind


5. CASE STUDY

Energy sector

Energy tariff system seems to be a major problem for about 66% of the companies. Only 7% of the companies surveyed stated that energy tariff system doesn’t have any negative impact on them.

In the other side about the same percentage of the companies mentioned the impact of energy in the total cost to be a major problem (61%).

65.3

27.8

6.9

0 10 20 30 40 50 60 70

Major problem

Moderate problem

No problem

Energy tariff system is

60.8

28.7

10.5

0

10

20

30

40

50

60

70

Major problem Moderate problem No problem

What is the impact of energy in the total cost


The majority of the companies (88%) said they do not have any impact form the investments that KEDS made; respectively it did not impact companies and their competitiveness. In regard to energy situation impact in profitability, more than half of them mentioned the impact it has in profitability. Only 13% of the companies said they were not affected by the energy situation.

88.4

6.0 5.6

0102030405060708090

100

There has been no significantimpact

Decreased competitiveness Increased competitiveness

Did developments from KEDS network improve your competitiveness?

53.0

33.4

12.6

0

10

20

30

40

50

60

Yes, very much Yes, a little No impact

Did the energy situation impact the profitability of your business?


6. CONCLUSIONS (AND RECOMMENDATIONS)

Kosovo businesses have highlighted “cost of labour” and “liquidity problems” among the major obstacles, followed by “Tax system” and “cost of bank financing”. Compared to the previous year where “cost of electricity” was on top of the barriers (57%), this year it seems to have a lower impact. As mentioned above this in any circumstance does not mean that businesses have lesser problems in regard to energy, this seems to be a signal that problems have become smaller. KCC assumes that the companies have managed to organize themselves in a way to cope with the problem. KCCs opinion is confirmed correct by the majority of the companies (88%) that stated that they did not notice any positive impact from KEDS investments. The Chamber recommends immediate action as to have available affordable and reliable electricity. It is assumed that a new power plant would be required.

Specific questions were made to businesses in regard to energy sector. Energy tariff system seems to be a major problem for about 66% of the companies. About the same percentage of the companies mentioned the impact of energy in the total cost to be a major problem (61%).

Regarding labour cost, the Chamber recommends to study further the composition of the costs (wages, dues, tax etc) in relation with productivity and quality. This may impact the vocational training, as well as managerial measures improving efficiency. As mentioned above the Ministry of Trade and Industry is trying to bring enterprises into the real economy. This is considered a positive development. Next to this initiative other institutions (like Ministry of Finance, Statistical Agency of Kosovo, Tax Administration of Kosovo, and Kosovo Customs) are requiring better documentation and more information from the enterprises. This on one hand brings more work to the enterprises and on the other hand indeed will lead to a smaller number of enterprises in the gray economy, as more enterprises will be known by these institutions. As this is a new phenomenon for the enterprises this poses a new problem for them and thus figures high on the list of obstacles. This corresponds with the objective of the Tax Administration and Kosovo Customs to collect substantially more from the private sector. Kosovo Chamber of Commerce welcomes this tendency to get enterprises into the real economy.

Regarding liquidity problems (and related obstacles such as access to and cost of bank financing, profitability too low etc.) the Chamber recommends reviewing the existing possibilities of obtaining bank loans and their interest rates. The Chamber is a strong believer that good and realistic business plans can substantially reduce the risk for financing institutions, and thus reduce the required interest rates. Lower interest rate and good business plan will result in higher profitability. A discussion with the Central Bank of Republic of Kosovo and the commercial banks on the composition of the cost of capital, more specifically the risk component, can lead to affordable cost of financing, as well as accessibility.


There are a number of obstacles the government can address. These concerns (from the top 10, tax system, customs regulation, adequate laws, legal environment) have to be tackled by the government. Some of these were mentioned in the bottleneck study of last year. All of them have grown in importance since last year, and often by more than 15%! It is time government gives adaptations a priority.

Political stability is of importance, both for domestic and foreign direct investments. The result of this survey revealed a decrease. When the former bottleneck survey took place, there was no new government installed yet. Now, there is a government but the functioning of parliament is posing a problem. From the decrease of importance for this obstacle, it seems that the business community attaches more importance to having a functioning government. Nevertheless, the Chamber, on behalf of the Kosovo business community, will continue to constructively pressure responsible institutions to increase stability.

Last year, a relatively high share of companies mentioned unfair competition by the grey economy and by low quality products. Linked to the grey economy is the fact that a large number of enterprises are informal. From the fact that these obstacles have far less importance now, one might have the opinion that perhaps enterprises have moved from the grey and black sector and have become formal. This might also explain the increase in factors related to costs of labour.

Regarding investment, it is noticed that a big number of enterprises did invest in 2014 and even more planned to do so in 2015. In 2015, 43.6% did invest (compared to 40.2% who had, in the first bottleneck survey, indicated their investment would increase) and 49.5% intends to invest in 2016. This is a very positive and encouraging sign, especially since the manufacturing and to a lesser extent wholesale sector invested more, considering the fact that their contribution to the national GDP is very high. Hopefully this increasing investment creates also innovation. More small and medium companies invested which is fortunate since most employment generation comes from the small scale sector. However, this needs careful monitoring. In case investments lack behind, corrective or stimulating measures should be implemented. KCC found a strong correlation between companies that organized training and their expectations for investments. More training brings more investments.

Sales expectations for the year 2017 show that especially small and medium enterprises expect higher sales. These seem to manifest themselves more in the retailing and also manufacturing and services sector. KCC found a correlation between higher sales and the trainings organized by the companies.

The survey revealed that there are internal deficiencies regarding the management of companies. However, a number of these deficiencies seem to be a symptom of underlying lack of qualified expertise. A targeted intervention, possibly through training, counselling and consulting, should be designed in order to allow the enterprises to make a step forward and improve their entrepreneurship and management.


Most striking are the notions around marketing plan and quality. Companies have lesser obstacles when having marketing plan and quality orientation. There is significant proof that these orientations (as sign of serious management) leads to fewer obstacles. One can assume that more mature management makes companies better equipped to deal with obstacles. It could be good policy to design a nationwide program focusing to start with a business plan, or business model generation.

It is assumed that for the Kosovo economy to grow, it would be a prerequisite that companies and the economy are dynamic, and take advantage of opportunities that emerge. Specific policies to generate such attitude, and opportunities, can be developed.


7. METHODOLOGY The growth obstacles for businesses in Kosovo are analyzed in this report with the help of a business survey conducted by the Kosovo Chamber of Commerce. The survey uses a questionnaire, which was especially developed and modified for the economic situation in Kosovo. The questionnaire with the specific questions was developed by the KCC staff from respectively department of economic analysis and policies together with the external expert. The questionnaire consists of four parts:

The first part considers some firm characteristics.

The second part focuses on assessments of the firm`s economic situation regarding sales and investment.

The third part contains question batteries regarding obstacles for the activity of the firms. The obstacles are classified into three broad categories of external obstacles: Economic environment, administrative and regulatory conditions, and infrastructure and general conditions. In addition to the external factors a question battery for internal obstacles is also included.

At the end of the questionnaire we have added a specific section in regard to energy system and it costs.

The character of the survey is both qualitative and quantitative. So the respondents are asked to give answers on qualitative verbal scales also asked to give their recommendations in specific areas. Typical response options are for example: no obstacle/ moderate obstacle/ major obstacle or does not apply.

The size and structure of the sample fulfills statistical criteria to gain representative results. The data were collected by personal interviews. KCC staff visited the businesses between 17th of January and 5th of February 2016.The visited businesses were selected from the Tax Administration of Kosovo (TAK) database. The sample structure is shown in Table 1. Because the survey was conducted in the early days of the year 2016 they are considered to reflect the situation in the year 2015.

Your main activity is?

Total Manufacturing Retailing Wholesaling Construction Services Other Size class

<2 3 24 2 0 8 1 38 2 to <10 23 63 17 3 46 1 153 10 to < 50 27 14 8 10 14 0 73 50 to < 100 14 4 2 6 3 0 29 100 and more

6 1 3 0 2 0 12

Total 73 106 32 19 73 2 305


Appendix

Your main activity is? What are your expectations for sales, for the next year, 2017? Total

Going up Remain the same Going down

Manufacturing 49 22 0 71

Retailing 60 44 1 105

Wholesaling 21 8 2 31

Construction 12 8 0 20

Services 44 27 3 74

Other 2 0 0 2

Total 188 109 6 303

What do you expect, how will the investment of your firm develop in

the year 2016 compared to 2015? They will

Total


New clients gained Less than 10% 43 95 2 140

More than 10% 96 28 1 125

Total 139 123 3 265

Your main activity is? Did you gain new clients during this year? Total

Yes No

Manufacturing 65 6 71

Retailing 87 15 102

Wholesaling 29 2 31

Construction 17 2 19

Services 63 11 74

Other 2 0 2

Total 263 36 299



Infrastructure and general conditions: Political instability

Total Major obstacle Moderate obstacle No obstacle Does not apply

Manufacturing 16 38 11 1 66

Retailing 20 54 23 2 99

Wholesaling 5 15 6 1 27

Construction 5 11 1 0 17

Services 19 32 20 0 71

Other 0 0 1 0 1

Total 65 150 62 4 281

Your main activity is? What do you expect, how will the investment of your firm develop in the year

2016 compared to 2015? They will

Total






Services 32 40 1 73

Other 1 1 0 2

Total 151 148 6 305



Total Increased Remained unchanged Decreased





Services 26 42 3 72

Other 1 1 0 2

Total 130 154 13 298

Str. Nene Tereza No.2010000 Prishtina, Republic of Kosova

Tel & Fax: +381 (0) 38 224 299Mob. +377 (0) 45 677 877

[email protected], www.oek-kcc.org

paving the way for better business in kosovo · 2018. 5. 24. · paving the way for better business...

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