Study Of The Challenges That Hinder MSME Development In Kosovo : Country Report for the British Council and Swedish Institute

Abstract

Kosovo is situated on the Balkan Peninsula, in Southeast Europe. It is spread across almost 11,000 sq. kilometres and is bordered by Montenegro in the northwest, the Republic of Serbia to the north and east, FYR Macedonia in the south, the Republic of Albania in the southwest. The Kosovo plain, which gave its name to the country, was the scene of the Battle of Kosovo between Serbia and the Ottoman Empire in 1389. Kosovo is more densely populated than its Western Balkans neighbours. Over half the population lives in rural areas, primarily in small villages in the central plains and on the lower slopes of the mountains. According to its Labor Force Survey, Kosovo’s unemployment rate is 27.5% and higher among young people and women. Kosovo has one of the youngest populations in Europe with an estimated 40% of its citizens below the age of 20, these individuals enter the labour market each year finding limited employment options. Kosovo remains one of the poorest, least-developed regions of the Western Balkans. Following the 1998–99 conflict, Kosovo’s economy benefitted from an influx of international administrators. The adoption of the Euro has helped to bridle inflation. Although the post-independence government worked to strengthen the market economy, particularly by privatizing state-controlled businesses, Kosovo continues to rely heavily on remittances from Kosovars working abroad, as well as on international aid. In 2016, Kosovo’s GDP stood at US$ 6.65 billion (constant 2010 value) having grown 18% (US$ 1.0 billion) since independence. Despite this, Kosovo is in improving economic health and there has been a slight improvement in the ease of doing business domestically. Its major industry sectors are retail and wholesale sector (56% of total business volume), followed by Manufacturing (12%), Construction (10%). The Retail sector is the largest employer (36% of all employees) whereas 15% of the workforce is employed in Manufacturing. Unlike other Western Balkans countries, most of Kosovo’s exports do not head toward the EU – their key markets are the CEFTA countries, and most likely to be its Western Balkan neighbours (particularly Albania), to whom 47% of export activity is directed. We undertook a survey of aspiring entrepreneurs across Kosovo. The sample was largely self-selected based on previous telephone surveys where respondents had expressed an interest in entrepreneurship, plus a review of the commercial register and referrals from respondents. The age distribution of aspiring entrepreneurs was under represented in younger age groups but higher in the 25–34 year old group compared with the population. For the purposes of this study, we refer to these respondents as entrepreneurs. However, it is pertinent to appreciate how Start Ups actually see themselves, as this may well be an indicator of their own growth perspectives and future success: - 3% describe themselves as entrepreneurs; - 26% describe themselves as self-employed; - 69% described themselves as businesspeople. In this respect, they are quite different to their peers in other markets, who see themselves either as entrepreneurs or self- employed. Respondents were also distinctly different from other countries in the research) in that all had a higher education qualification. The World Bank published its latest 2018 ‘Doing Business’ report in January 2018. This shows that Kosovo is now ranked as high as 40th in the world in terms of ease of doing business - a large improvement of its 2017 ranking of 60th. Kosovo performs particularly well on ‘Starting a Business’; here it is ranked 10th globally – on the basis that it takes little time to actually set up, with very little cost involved. It also performs well on the ability for businesses to get credit (12th in the world). The European Commission believes that all Western Balkan countries have the chance to move forward on their respective European paths. In particular, Kosovo has an opportunity for sustainable progress through implementation of the Stabilisation an Association Agreement and to advance on its European path once objective circumstances allow.