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FEATURE STORY

Kosovo Forges Ahead with Regulatory Reform for Business

May 1, 2013

Bank Group supports measures to ease start-up and construction permits, protect investors

Kosovo is advancing in its push to make it easier for businesses to register and operate, enacting new legislation in areas tracked by the Doing Business report for starting a business, protecting investors, and dealing with construction permits. The World Bank Group began advising the government in March 2010 on these areas of regulatory reform, coordinating closely with USAID and its broad investment climate program in Kosovo and others in the country’s active donor community. In Doing Business 2013, Kosovo ranks 98th in overall ease of doing business, rising from 117th in the 2012 report’s ranking.

“These reforms are the cornerstone of our economic development vision,” said Deputy Prime Minister Mimoza Kusari-Lila, explaining that the Kosovar government’s plan sets the basic objective of promoting private sector-driven growth. “One of the major problems of our economy is the fact that it is driven by public spending and remittances from Kosovo’s diaspora,” she added.

Thirteen years after the war and four years after Kosovo declared its independence, the government is showing early results in its ambitious reform agenda, particularly in streamlining start-up steps for business. “We believe the current reforms are only the beginning of the development process that will see Kosovo in the European Union,” said Kusari-Lila, who is considered a champion for reform.

Business Registration: a less costly, more efficient process

Previously entrepreneurs could face a high hurdle when deciding to start a business in Kosovo. Numerous complicated and costly procedures required more than six weeks and a trip to the capital city of Pristina. Necessary approvals from various agencies—such as pre-start inspections—created opportunities for corrupt behavior and rent seeking. The costs of registration and minimum capital required were several times that of other countries in the region. As a result of these constraints, entrepreneurs were deterred from starting up or forced into the informal economy.

Several recent measures have reduced the time, cost, and number of procedures associated with starting a business, which now takes 52 days as reported in Doing Business 2013, 6 days less than in the 2012 report. The government amended two laws, eliminating the minimum capital requirement, the fee to register a business, and the municipal work permit. The new legislation sets a limit of 3 days (previously 10) for the Kosovo Business Registration Agency (KBRA) to process two required documents (the business certificate and the “business information” form).  In addition, 28 municipal business centers now process registrations, so business owners do not have to travel to Pristina.

In Pristina, Shani Hamitaga was pleased to find a simplified process when registering his real estate agency, Globi Group, LLS. “I was surprised with the new way to register and curious to know what had happened,” he said, explaining that he was also surprised to learn that he could obtain the fiscal certificate (assigned by the Tax Authority) and a value-added tax certificate, if needed, at registration. Hamitaga said he placed his request one day and was asked to pick up his certificates the next.

The investment climate team worked with KBRA and the Tax Authority to roll out the integrated registration system in Pristina, which uses a single application form and allows for an easy flow of information between the two agencies. The new system leverages the existing municipal business centers all around Kosovo, set up under an earlier World Bank project, into fully functional one-stop shops for business registration. Under the integrated system, the single form submitted by business owners at the business centers flows to the KBRA (to approve the registration number) and the Tax Authority (to authorize the fiscal number). Following these approvals, business center officials input the data, and the printed certificate reflects both the registration and the fiscal number.

Legal milestones: improved construction permitting, more investor protection

“For a while now, one of the major complaints from local and international businesses has been red tape and inefficiency in the delivery of public services,” said Bernard Nikaj, advisor to Deputy Prime Minister Kusari-Lila, adding that the initial phase of the reform has been to address these issues. In addition to improved business registration, Nikaj cites a simplified process for construction permitting and increased protection for investors in creating a more attractive business environment for foreign investors and an easier place for firms to operate.   

New legislation streamlines the procedures firms face in dealing with construction permits and related controls and inspections, yielding a faster, more transparent, and safer process. Three procedures take less time [23 days (down from 32) for approval of compliance with technical requirements; 10 days (down from 15) for fire protection clearance; and 34 days (down from 165) to register property at the Geodesy and Cadastral Directorate]. A new Law on the Cadastre lowers the survey and registration charge by an estimated 80 percent. The investment climate team assisted the government in aligning the draft Law on Construction with international good practice, and its passage is expected to encourage new construction projects.

The issue of protecting minority shareholders was raised in meetings with businesses and also through a legislative review process.  Subsequently the government amended the Laws on Business Organizations by increasing disclosure and director liability requirements and the ease of shareholder lawsuits.

The revised legislation requires officers and company directors to disclose to the public and shareholders all material facts about the director’s interest in transactions that could lead to a conflict between personal and company interests. Related transactions must be approved with majority votes of shareholders who do not have a vested interest; also, when one shareholder makes a decision about a transaction, it must be approved by the majority. Corporate directors may be held liable if transactions are unfair or prejudicial to other shareholders, and for damages caused and profits gained through their transactions.  In lawsuits, plaintiffs must have full access to related documents.

Next steps on the path to reform

Kosovo’s success to date also presents the challenge of continuing progress on the country’s reform agenda, according to Kusari-Lila. For business registration, the government aims to introduce a full one-stop-shop-in-a-day process—covering all required steps—as well as online registration.  It will also focus on eliminating unnecessary licenses and permits, targeting a 50 percent cut in the inventory by 2014.

"The success has been largely due to the government's strong commitment to reform,” said Private Sector Development Specialist Iva Hamel, who advises the Kosovar government as a member of the Bank Group team. “Now it is important to build on this momentum and continue to implement broad and deep reforms that will benefit entrepreneurs across Kosovo."


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