Kosovo Cash Crunch

While the international community acknowledges that billions of US dollars are needed for reconstruction in Kosovo, foreign investors confront serious risks when it comes to committing hard cash.

Kosovo Cash Crunch

While the international community acknowledges that billions of US dollars are needed for reconstruction in Kosovo, foreign investors confront serious risks when it comes to committing hard cash.

Thursday, 10 November, 2005

Kosovo needs $1.2 billion for reconstruction in 2000, according to the World Bank and the European Commission.

The figure comes from a meeting in Brussels November 18 among senior officials from 47 donor countries and 34 international organizations to discuss Kosovo's reconstruction programme. The meeting was prepared jointly by EC and World Bank experts, in support of the United Nations Mission in Kosovo (UNMIK).

The donors pledged $970 million for the Reconstruction and Recovery Program - including $88 million for budgetary support for 1999 and 2000. In addition, $47 million was pledged for peace implementation activities, such as support for media and elections, and $18 million for humanitarian activities.

The sum may seem reasonable since the first donors conference promised $2.2 billion. But UNMIK is unhappy, claiming this "promise has not been fulfilled".

Representatives from the World Bank and the European Commission insist that more than $900 million has already been spent on various projects in Kosovo.

Yet across Kosovo and within UNMIK, there is considerable discontent over the speed with which donor money needed for practical reconstruction programmes is arriving.

The consensus is that reconstructing the economy presents the best solution to Kosovo's problems. Yet such reconstruction cannot take place without foreign investment.

The UNMIK administration helps to bring together foreign investors and local business, state-owned and private. "The interest of foreign investors is amazingly high," says Lucja Cannon from UNMIK. "We are doing everything to solve the problem, but this is not that easy." The economic and legal legacy inherited from Yugoslavia has complicated the situation. Cannon explained that one part of UNMIK's job is to prepare the ground for "marketisation" and privatisation. Crucially, UNMIK is working to establish a sound legal framework, a prerequisite for commerce.

The process of investment and privatisation in Kosovo began 10 years later than elsewhere in Eastern Europe. Add to this the devastation caused during the war and the scale of the problem becomes all to clear.

Ten years ago Ante Markovic, then-Yugoslav prime minister, began a programme to modernise the economy. But Milosevic had other ideas. Milosevic's brand of Serbian nationalism proved a stronger tool than Markovic's reforms. In 1989 Milosevic cancelled all privatisation plans in an effort to strengthen Serbian state enterprises. The Serbian Development Fund owned the bulk of these enterprises. After 1989 Milosevic began a process of forcibly merging Serbian and Kosovo Albanian enterprises. Those foreign investors involved in this process are considered "highly suspect" by the UNMIK.

Since the end of the recent conflict, around 300 foreign companies have expressed an interest in investing in 200 of Kosovo's public and private enterprises. So far, however, only Alcatel has completed a deal. And even this breakthrough has been marred by controversy with some officials and local people claiming Siemens put forward a better offer.

UNMIK might be "delighted" with the level of "interest" expressed by foreign companies. But in reality, only a very few are likely to actually part with any hard cash in the present situation.

The private sector in Kosovo is relatively problem free. But the undefined legal status of public enterprises has discouraged foreign investors from making serious commitments. Serbian law has been suspended or "frozen" in some areas, contributing to confusion over Kosovo's future status. Under UN Resolution 1244, Kosovo remains officially under Yugoslav sovereignty, but Yugoslavia retains virtually no practical control over Kosovo's economy or law making processes.

In most instances it is very difficult to establish ownership of enterprises in Kosovo. Before Serb forces withdrew they destroyed all documentation relating to the ownership and operation of state enterprises.

After 1989, Albanian workers were frequently sacked and replaced by Serbs, often newly arrived from Serbia. Former Albanian employees are demanding compensation for the past 10 years. Most plants at the moment are not operating and are in a state of disrepair. Furthermore foreign investors will have to take on the task of training the work force.

According to UNMIK's Cannon, several investors have expressed interest in the SHARR cement plant, located on the Kosovo-Macedonian border. At present the decaying factory only produces a few tons of cement each day. Group KA Holdings has expressed interested in the plant. Isuf Zejnullahu, Kosovo's former prime minister under the communist period, and Shemsi Doda, his assistant, represent Group KA Holding in Pristina.

Zejnullah claims that "Group KA Holding is the biggest and the best. Lafrage and Blue Circle are interested too. We should win because we offer the best deal." Group KA Holding has offered 37 million German marks, a safe environment and training for the work force. In addition they claim they will raise production to 560,000 tones per annum.

Successful foreign investment will very much depend on political developments in Kosovo. Trepca - a coal mining operation in Mitrovica - is UNMIK's biggest concern. Mitrovica is still a divided town and remains a source of concern for KFOR, for Albanians and for Serbs. No political solution is in sight.

As Cannon points out, "We have only a partial solution, not an entire one." It is difficult to see who will risk a major investment in an enterprise like Trepca when such problems are only partially resolved.

Daut Dauti is an IWPR project editor in Pristina.

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