Regional development strategy - RDA South

REGIONAL PROFILEEconomy: Production and Service Sectors22.42.4 Economy: Productionand Service SectorsGeneral CommentsOver the past few years Kosovo’s economy hasshown significant progress in transitioningto a market-based system and maintainingmacroeconomic stability, but it is still highlydependent on the international communityand the Diaspora for financial and technicalassistance. Economic growth is largely drivenby the private sector, mostly small-scale retailbusinesses. The official currency of Kosovo isthe Euro. Kosovo has so far maintained abudget surplus as a result of efficient valueadded tax (VAT) collection at the borders andless than efficient budget execution. In orderto help integrate Kosovo into regional economicstructures, United Nations Mission inKosovo (UNMIK) signed (on behalf of Kosovo)its accession to the Central European FreeTrade Agreement (CEFTA) in 2006.In December 2008, Kosovo was designated asa beneficiary country under the GeneralizedSystem of Preferences (GSP) program. Underthis program, a wide range of products Kosovomight seek to export are eligible for duty-freeentry to the United States. Current Kosovo exportsthat are eligible for GSP benefits includewood products, charcoal, and dried fruits.Other main exports include mineral products,base metals, leather products, machinery,and appliances. Kosovo’s main export partnersare Italy, Albania, FYR of Macedonia, andGreece. Imports include live animals and animalproducts, fruits and vegetables and relatedproducts, minerals, base materials, machinery,appliances and electrical equipment,textiles and related products, wood and woodproducts, stone, ceramic and glass products,and chemical products. The country’s mainimport partners are the EU, FYR of Macedonia,Serbia, Turkey, and Albania.Regional economy, similarly to the rest ofKosovo, is relatively stable but stagnating. Asa result of this trend and the stability providedby the Euro currency, the inflationary pressuresare very low. Significant internationaltrade deficits are being balanced by the Diasporaand by the international communitywhich provide financial and technical assistance.Regional economy suffers from excessiveand unnecessary reliance on importedgoods, which could easily be substituted bydomestic production.Transition to the market driven economyhas essentially been completed with the privatizationprocess largely finalized and theeconomy is currently driven by the private sector.The privatization of the socially-ownedenterprises (SOEs) brought significant revenueto Kosovo’s treasury but new investorsstill have not been successful in creating viablelocal industries with a notable exceptionof the region’s wine industry. Many of theother privatized enterprises have downsized,continued to struggle and are far from reachingpre-conflict production levels.Structure andprofitability of thebusiness sectorAccording to the Statistical Office of Kosovo,by the end of 2008, there were some 12,000businesses registered in the Economic RegionSouth and that number continues to grow.The attrition rate (companies going out ofbusiness) over the past several years has beenat the level of about 8% and it has been morethan compensated by a new start-up rate.Comparing the number of registered businesseswith the numbers related to the employmentthey generate leads to the conclusionthat, within the private sector, economicgrowth of the Region is largely driven by theSmall and Medium –sized Enterprises (SME’s)rather than by the small number of largerbusinesses.Financial data related to the state of the regionaleconomy and profitability of businessoperations tend to be fragmentary and are theleast reliable for a variety of reasons includinglocal business culture. Consequently, the analyticalcomments made in this section are notalways backed by a consistent set of data coveringall the municipalities of the region. Ad-REGIONAL DEVELOPMENT STRATEGY FOR THE ECONOMIC REGION SOUTH17