Kosovo Economic History in a Nutshell

Economic activity in Kosovo, before World War II, was organized along family lines, with patriarchal characteristics. The roles, duties, and responsibilities of family members were strictly defined, under the domination of the father. Some big families counted 20, 30, and, in some cases, even 50 or 60 members. Family business was concentrated in agriculture, cattle raising, and handicrafts. Traditional artisans and simple manufacturers dominated production. Although Kosovo has many natural resources—including lead, zinc, silver, nickel, ferronickel, and coal—it remained largely agricultural before World War II, untouched by technological progress. Education was at a low level, with a high proportion of the population illiterate, but the central government in Belgrade cared little about the situation. 

After World War II the socialist system in the former Yugoslavia measured its success in terms of the state sector’s increasing share in production. The private sector was reduced to family farms, grocery stores, small restaurants, and handicraft shops. During the 1980s the authorities became more supportive of small and medium-size businesses, including private enterprises, yet the private sector’s share in GDP by the end of the decade was no higher than 20 percent, compared with a 40 percent share in the early 1950s. In Kosovo the private sector’s share in total investments during that period had fallen from an annual 28 percent to 16 percent. Most investment over this nearly 40year period went to housing construction (7580 percent) and agriculture (1215 percent), with much less put into arts and crafts (3 percent), and almost no investment in infrastructure and industry. 

Despite these weaknesses enterprises in the former Yugoslavia were more decentralized, more directly exposed to domestic and foreign market impulses, and more liberal in their foreign trade than other CEE countries. Yugoslavia’s 1989 Corporation Law mandated the establishment of private enterprises and joint ventures between private and public sector participants, and between domestic and foreign companies. That should have yielded a great advantage to the country as, during the early 1990s, private initiative took off. In Kosovo, too, the number of private companies increased by leaps and bounds between 1991 and 1995. Then the spectacular increase came to a halt as Yugoslavia became a battleground and eventually split into successor states. The present Federal Republic of Yugoslavia has been reduced to Serbia and Montenegro. Kosovo’s autonomy has been suspended. Economic activity in the region has declined, reform has been blocked, and private business expansion has slowed. 

In recent years Kosovo’s private sector has developed more as a result of social pressure than of market impulses. It now contributes about 55 percent to the region’s GDP, similarly to Bulgaria, Croatia, FYR Macedonia, and Slovenia. This rate is higher than Serbia or Montenegro’s average (32.6 percent and 35.5 percent, respectively). Kosovo’s private sector has shown resilience and vigor, while public sector enterprises have lost ground. State (social) sector production in Kosovo declined by 25 percent both in 1992 and 1993, and stagnated in 1994. At the same time private sector production shrank by only 13 percent both in 1992 and 1993, and increased by 18 percent in 1994. Many jobs that were lost in the state sector—not least because the Belgrade authorities took state-owned companies under their direct control after 1990—were made up by job creation in private businesses. It is estimated that some 70,000 to 80,000 workers—about 20 percent of the labor force—are employed in private enterprises, including small businesses but excluding agricultural activities. Many individuals started their own ventures. Successful entrepreneurs are benefiting from Kosovo’s comparative advantages, including a young, relatively well educated population and rich natural endowments (principally its marketable agricultural products). 

More than 70 percent of Kosovo Albanians are unemployed, and the figures are not much better for Serbs living in Kosovo. The social time bomb is ticking: out of 2.2 million citizens, more than 50 percent are under 19. Economic activity takes place mainly in gray areas of the economy. The level of foreign investment is insignificant. Largely replaced by Serbs in public jobs, most Kosovo Albanians are supported primarily by hard currency sent home by the roughly 600,000 to 700,000 Kosovo Albanians abroad. By 1994 per capita GDP had decreased by 60 percent, compared with 1989, to a level of about $350. Industrial production shrank by 70 percent over the same period. 

The situation has continued to deteriorate. The Albanian boycott of the Serbian administrative system began in 1990 in protest over Belgrade’s move a year earlier to revoke Kosovo’s autonomous status. The Albanians have since set up their own education system for some 500,000 students and established an unofficial administration. They have also built up their own mechanisms to organize social and health services, information flows, and cultural and scientific activities.

 Based on Professor Mustafa’s essay and news agency reports.