UNMIK/FR/067/01
Economy
Donors continue to help Kosovo's economy
Kosovo's donors funded some DM 284 million of new contracts in the second
quarter of 2001, bringing the total ongoing or already completed projects
to more than DM 1 billion.
The second quarter report of the Department of Reconstruction (DOR) also
concludes that economic development in Kosovo is going well: the rural
economy will benefit considerably from a number of agricultural investments
and industry has much greater access to credit than ever before. Similarly,
there was good progress in the social sectors as both health and education
received important new commitments.
However, there remains an urgent need for additional donor support to
transport, environmental protection, civil security and emergency preparedness,
justice, Kosovo Police and Fire Services in order for important programmes
to go ahead this year.
Positive indicators
Since 1999, donors have committed some DM 3.5 billion to Kosovo's reconstruction,
of which about DM 2.96 billion has been contracted and DM 1.818 billion
spent. Such a high rate of contracting and spending compares favourably
with assistance programmes in other countries, the DOR report notes.
The social sector and economic development benefited especially. Their
extraordinarily high rate of contracting and disbursement clearly demonstrates
that Kosovo has no problem with absorptive capacity. Donors can thus confidently
make substantial new commitments next year without fear that their programmes
will be held up by bureaucracy: Kosovo thus remains a highly efficient
destination for donor funds.
Equally important, some donors are beginning to plan for several years
ahead. This is to be encouraged, DOR says, because it helps UNMIK to plan
more effectively.
The overall economic picture is also relatively encouraging. UNMIK is
well on course to achieve its global spending objective with total estimated
expenditure very close to its requested DM 1.346 billion. Especially promising
are prospects in the energy and agricultural sectors: after completion
of major overhauls at the Kosovo A and B power plants, Kosovo may well
become an energy exporter. Agriculture, estimated to account for up to
30 per cent of GDP, is the other main potential source of export earnings,
particularly wine production.
The construction sector also continues to prosper. Reactivation of an
important brick factory in Podujevë/Podujevo significantly increased
local production of bricks and tiles. While trade and services continue
to dominate economic activity, industrial production finally seems to
be taking first steps towards recovery, but mainly in relatively low value
added sectors. As a result, Kosovo's trade deficit was estimated by the
IMF at DM 2.54 billion in 2000. Although figures for 2001 are not yet
available, it is certain that imports still vastly outweigh exports.
Concerns remain
Roughly half of the donor commitments to date have been for the public
utilities: other sectors still struggle to find funding even if the aggregate
picture appears reassuring. Transport, environmental protection, civil
security and emergency preparedness are under-funded; funding for Trepca
is nowhere near what had been requested; there has also been no donor
funding for the airport, almost none for mental health and little for
primary health care; none for social housing, little for the Kosovo Police
and Fire Services and for the Forensic Institute.
Donor-funded reconstruction activity is likely to be equivalent to about
30 per cent of Kosovo's GDP for the whole year. This means that the province's
economy is still extremely highly dependent on donors and on remittances
from Kosovars abroad. Continued and substantial donor investment is still
necessary in future years if the economy is to grow to expectations.
Reducing unemployment has been one of UNMIK's highest priorities, and
some progress has been made in creating sustainable livelihoods for Kosovars,
particularly in the rural economy. Donor activities in the first half
of 2001 have continued to help raise rural standards of living. The creation
of salaried employment in rural areas, however, is likely to have progressed
much more slowly. Loans given recently to wineries and a food processing
enterprises should have an effect later in the year, and alongside a number
of other income-generating programmes and micro-credit facilities should
prove to be of benefit for substantial number of people.
In urban areas, however, the services and construction sectors still account
for the majority of employment. The long-term employment situation of
urban households is likely to be more precarious than in their rural counterparts.
In the industrial sector, many entrepreneurs still find lending terms
too onerous for credit programmes to be optimally effective, DOR's report
notes. Start-ups continue to be excluded from most lenders' consideration,
which is a further drag on the development. The strategy of commercialisation
of socially owned enterprises has made some steps forward, with 19 commercialisation
tenders completed during the quarter and a likelihood of nine contracts
being signed in the near future.
Foreign direct investment (FDI) continues to be negligible and greenfield
investment practically non-existent. Legal uncertainties and security
issues still deter FDI, but important steps forward in beginning the process
of developing the commercial legal framework and in ensuring its enforceability
should address at least the first of these concerns to some extent.
Not sustainable
Finally, a significant share of employment (and an even greater share
of income) is associated with the presence of the international community,
particularly in the six largest urban areas. Employment with UNMIK itself,
donor agencies and NGOs is likely to decrease over time. Another phenomenon
which may have long-term negative consequences is the interruption of
the studies of a large number of university students who work full-time
for international organizations.
Of greater economic and social significance than employment levels, however,
are the severe distortions being perpetuated in the labour market in terms
of unrealistically high salary levels, particularly those paid by the
international community, as well as in sectors, which serve the international
presence. This is largely, but not exclusively, an urban phenomenon, which,
by artificially inflating rent, food and other costs in the urban centres,
hits the urban poor particularly hard.
Contact: S. Vinogradov
(038) 504 604 Ext. 5528
E-mail: vinogradov@un.org
Note for editors
The full document may be consulted online in English at http://www.unmik.org/. Albanian and Serbian
versions can be provided.
For a selection of photographs, please contact Mr Ky Chung at 038 504-604 ext. 5467