Developing the Private Sector in KosovoAn Ongoing Research Project
by Muhamet Mustafa

In July 1997 the Pristina (Kosovo) based the Riinvest Research Institute conducted a survey to assess the major factors that impede the progress of the private sector; the survey sample was 300 enterprises (3 percent of Kosovo’s private companies). Major difficulties listed by the private companies included the following: 

• About three-quarters of polled entrepreneurs complained about the uncertain political situation that deters investors and prevents cooperation with foreign partners. Elimination of Kosovo’s autonomy and the mass firing of Albanians from state-owned enterprises and public institutions, especially the firing of those in leading positions (more than 130,000 Albanians, almost 60 percent of whom worked in the governmental sector, were discharged from their jobs), created a degree of uncertainty that is non-conducive to business and hampers the pooling of resources. The majority of enterprises have only one founder-owner, and only 3.3 percent of polled enterprises operate as some kind of joint venture. 
• The central authorities collect more and more in taxes and penalties. Companies are audited every second month, on average. In 60 percent of cases the auditors come up with an arbitrary penalty. The milking of legally established companies prompts them to go underground. 
• Little or no financial support is available to private companies. A low 11.3 percent of polled enterprises have used short term credit for financing working capital, but no company has secured such credit for investment activities. Entrepreneurs have to use their own financial resources and cannot hope for any loans or guarantees. With the exception of the Economic Bank of Pristina, Belgrade banks have only representative offices in Kosovo, and these are authorized only to conduct foreign exchange transactions. And even the Economic Bank cannot provide longterms credits or establish relations with foreign banks. 

As a consequence, old structures survive, the private sector stagnates, and reform is at a standstill. The number of registered private companies has ceased to grow. In the hostile environment, the survey confirmed, private companies showed weaknesses in three important areas: 

• Most do not apply modern management concepts. 
• Organization is outdated. 
• Until recently the business community has been unable to coordinate and protect its interests. 

Weaknesses in Management 

Kosovo’s private enterprises generally do not employ advanced management practices, marketing and promotion strategies, or information systems. Our investigation showed that most entrepreneurs and managers develop their business objectives and concepts without first designing a business plan or strategy. Feasibility studies are rare. Instead, businesses rely on intuition. More than 70 percent of private businesses are general purpose commercial enterprises. Only 55 percent of registered enterprises are operating according to their original profile. Investments are largely improvised without a well though out strategy, at least partly because of the overwhelming difficulty of daily operations and the lack of information. 

On the positive side, entrepreneurs and managers have relatively high qualifications: about 68 percent have a university or college education; by training, 38 percent are economists and 25 percent are engineers. (Most have not upgraded their knowledge with time, however. Only 10 percent had participated in seminars or workshops organized to discuss legislative changes and other professional topics). 

Companies still do not view marketing as a core activity. Only 8 percent of polled enterprises engage in regular promotion of their products or services. The target market is Kosovo, where 80 percent of goods and services are sold; only 15 percent is exported to Serbia and Montenegro and a mere 5 percent goes abroad. One reason for this is that much of Kosovo’s production is not yet competitive on the world market. 

Although many private companies have begun computerizing their business activities (66 percent of enterprises have one or more PCs), this hasn’t been integrated yet with management methods. PCs are used mostly in accounting and for registration of inventory, and as word processors. Only 17 percent of private enterprises have access to local computer networks and just 3 percent to the Internet. 

Outdated Organizational Patterns 

Inadequate organizational patterns have hampered enterprises’ ability to react promptly to outside impulses and make crucial decisions in a timely fashion. Important business information often does not reach the right persons. Staff hiring is flawed; and management is less motivated to initiate systematic employee education, or retraining through seminars and workships. Bookkeeping and accounting suffer and lack accuracy. 

Fragmented Business Community 

Organizing the business community in Kosovo has long been neglected. But the recent establishment of Kosovo’s Business Association is a change for the better: the association has pledged to act in the interests of its members, providing information about legislative changes, supporting their marketing efforts, and setting up links to research institutes and universities. It will establish relationships with similar organizations in other regions and countries. Members hope that through the association, international institutions and organizations will provide technical assistance. 

The Riinvest Research Institute conducted this survey as part of an ongoing research project, “Economic Activities and Democratic Development of Kosovo.” The project’s aim is to analyze key issues confronting the private sector in Kosovo and, simultaneously, to learn more about the sector’s structure, resources, management skills, and partnership potential. The project is supported by the Center for International Private Enterprises (CIPE), Washington; the Open Society’s Branch Office, Pristina; and the Friedrich Ebert Stiftung, Bonn. 

Based on this research and international experience, Riinvest will draft guidelines on changing the institutional environment, developing the small and medium-size enterprises, and introducing an effective business education program; in short: a transition strategy that will create in Kosovo an open, marketbased economy. 

The author is President of the Board of Riinvest Institute for Development Research, Pristina, Kosovo, FR Yugoslavia. (Riinvest is a private research institute that was formed in May 1995.) Fax: 381 3835718.