Interview with Zëri Newspaper
World Bank Office in Kosovo
“Tri elemente për të sjellë investime (Three elements needed to attract investors),”
Zëri , Vol. 12, No. 3743 (December 7, 2011), pp. B06–7.
It has been reported, in a constant manner, that foreign investments have fallen in Kosovo. Why is this happening?
Olters: Depending on one’s view, the glass is either half empty of half full. If we, for instance, compare foreign direct investments in the pre-crisis year 2007 and the post-crisis year 2010, they have indeed fallen by about 18 percent in nominal terms, from €441 million to €362 million. If one adjusted the numbers for the effects of inflation, the fall would be steeper still. However, one could represent the same numbers by saying that foreign investments to Kosovo have increased from 0.026 percent of global FDI in 2007 to 0.031 percent in 2010. That is, the country has managed to attract a larger piece of the globally available pie of investments both over time and relative to its population size. In fact, over the last five years and through the global financial crisis, Kosovo’s share of global FDI has gradually—but consistently—increased. A considerable part of the answer thus relates to the external economic environment over which Kosovo and its policymakers have no influence.
Kosovo has fallen this year very low on the World Bank’s list of Doing Business. Will this change for the better next year?
Olters: It is less that Kosovo has “fallen” to a very low level, it has remained at the unimpressive 117th rank of altogether 183 economies, unchanged from last year. Clearly, this is not enough—not because of the country’s relative ranking within Doing Business per se, but because of its ambition to provide a framework within which the economy can grow at dynamic rates over a prolonged period of time. This, in turn, requires increases in domestic productivity. As a euroized economy, Kosovo cannot use “monetary policy shortcuts” to boost growth, that is, it cannot let its exchange rate depreciate to make exports cheaper and imports more expensive. However, Kosovo can import “gains in productivity” by attracting high-quality foreign investments that bring in capital as much as technology and know-how. And here, Kosovo can do better. It needs to identify and address, in a strategic and focused manner, particular weaknesses in its business climate. You have mentioned this year’s Doing Business and Kosovo’s overall ranking. To me, it is much more interesting to analyze the subcategories rather than the overall rankings. In certain areas, such as getting credits, resolving insolvencies, paying taxes, or registering property, Kosovo is doing better not only than the average of its neighbors in the Western Balkans but also relative to the average of the new EU member states plus Croatia. So it is a little bit like a chain with some strong and some weak links, with the weakest link determining the strength of the overall chain. If we just took Doing Business as one indicator, this would imply that protecting investors, issuing construction permits, starting a business, enforcing contracts, trading across borders, and getting electricity remain critical policy priorities. Admittedly, some reforms having already been adopted, shortly after the deadline for this year’s Doing Business survey, but more remains to be done. In fact, if you look at these policy priorities, many of them are congruent with what the European Commission, in its Progress Report, refers to as challenges in the “rule of law” area. That said, I see important reasons that make me believe that related reforms will remain a policy priority for the immediate future. In a number of areas, the World Bank is actively supporting these efforts. To be successful, Kosovo requires a transparent and uniformly applied legal framework and an unwavering policy commitment to reform and the careful implementation of already adopted laws and regulations. With continued commitment and dedication to addressing the weakest links in Kosovo’s business climate, I would not be surprised if, over the course of the next few years, Kosovo might “surprise” investors and have them look at Kosovo anew, revising preconceived notions and existing prejudices.
How much of an investment climate is there in Kosovo?
Olters: There are a number of encouraging indicators already, including (1) successful investments in some areas, including the financial sector; (2) increasing exports; (3) a low level of public debt; and (4) growth rates that have proven more robust than elsewhere in Europe. That said, certain facets of the business and investment climate have proven quite attractive, even if Kosovo has remained below its full potential. At this stage, the key challenge is, of course, to adjust the underlying socio-economic development model with a view to having the private sector—rather than the government and the diaspora—fuel growth and job creation. For firms, there is a solid, not least because Kosovo has abundant natural resources and fertile agricultural land and is close to EU and regional markets. And, most importantly, it has a young and flexible labor force that is eager to prove itself in the workplace. The government has already provided investors with a simple tax regime with low rates. It now needs to focus its efforts on strengthening the weakest and most fragile links to be able to pull the economy forward and allow it catch up with and overtake economies which have had a little bit of a head start.
How much is the Government of Kosovo doing for foreign investors?
Olters: As a small, landlocked, and only partially recognized country, Kosovo faces number of constraints and disadvantages outside the government’s control. This is, of course, an encouragement to place particular focus on the three principal elements comprising an attractive business climate, namely (1) a stable macro-fiscal environment; (2) a modern, well-maintained “hard” infrastructure (such as energy, transport, or water); and (3) the “soft” infrastructure comprising the rule of law, public institutions, and the quality in the provision of public services (in, for instance, health, education, and environmental management). All of this is, naturally, work in progress and, as such, too early for a conclusive assessment.
What are the areas with the highest investment interest?
Olters: Historically, these were financial services, production, real estate and construction, as well as transport and telecommunication. It is encouraging to see that, since 2007, investment in production have gone up from less than one-tenth of total investments to projections of almost one-quarter for this year. This would be consistent with a development towards an economy that is more and more fueled from within, driven by private-sector activities and independent of government-financed investments.
How safe is Kosovo for long-term or short-term investments?
Olters: You will, of course, get more precise responses when talking to investors directly, but Kosovo remains, for the time being a country with high risks and high potentials—even though the question is justified whether the perceived risks are indeed as high as the real ones.
Can one expect increase of investments next year?
Olters: Given the fragility of the external environment, with the impact from the potential sovereign debt crises emanating from either the eurozone countries or the US economy remaining unclear, it is somewhat disingenuous to attempt a well-founded forecast for next year. There could easily be considerable changes, either upwards or downwards.
Are the reports of international organizations (Transparency International) on the high level of corruption impacting the investments?
Olters: In recent years, there has been a certain degree of stability in these international rankings. That is, without any surprises, either positive or negative, these surveys have already been factored into potential investors’ decision-making processes. At the same time, if a reform momentum succeeded in improving the country’s ranking in these surveys, they could become very powerful instruments to “surprise” the markets and change preconceived notions.
Are foreign investors concerned about the level of corruption in Kosovo?
Olters: Foreign investors, typically without personal contacts to government and public administration, want to know that existing laws, regulations, and rules are applied consistently and uniformly. They want to be able to project the time and costs required for licenses and permits and they want to know the amount of taxes and fees to be paid. They rely on their ability to enforce contracts, if need be, in the courts. If this is not ensured, it is, of course, a reason for concern and the basis for a decision to choose as a site for production and operation a country other than Kosovo.