Economics and business
COUNTRYAAH, Kosovo is one of Europe's poorest countries. This is
despite the fact that the country has plenty of natural
resources, especially minerals but also fertile land. War
and ethnic conflicts, especially during the 1990s and the
years that followed, seriously damaged an already weak
economy. The recovery and the transition from the planning
economy of the Yugoslavian era to a market economy has been
slow. The country's economy still has not reached the 1990
level. A very big problem is the extremely high unemployment
The mining and metal industry has long been the basis of
the economy and this has been strengthened since the end of
the 1990s. The manufacturing industry as a whole decreased
its share of GDP during the period 2001–09, while
construction increased. Agricultural production has declined
significantly, but self-employed agriculture still provides
employment for a large part of the population.
Before independence. Kosovo's role when the area
was part of the Yugoslav state of Serbia was to provide the
base metals needed in the Union, mainly in Serbia. Other
industries were very small and apart from the manufacture of
vehicle components, it was aimed at the local market. The
population was the poorest of Yugoslavia and the vast
majority were Kosovo Albanians.
After the disintegration of Yugoslavia and since Slobodan
Milošević became Serbia's president in 1989, the situation
of Kosovo Albanians was deteriorating (see Population and
Social Conditions). Many emigrated, a large part of the
business community collapsed and the infrastructure
collapsed. The 1998-99 war further worsened conditions. The
reconstruction then proceeded slowly and was entirely
dependent on international aid. The transition to market
economy was delayed, as there were no buyers for the large
Problems and opportunities for the new country.
Kosovo is heavily dependent on foreign aid and money
transfers, while business has little connection to other
countries. Foreign trade represents a smaller share of GDP
than in other countries. The weak link with other countries'
economies has meant that Kosovo has been relatively little
affected by the international economic crises of recent
years. Every year since independence in 2008, GDP has
increased, on average, by about 5 percent. Since 2002, the
euro has been used as currency, but only in 2012 was Kosovo
granted status as a candidate country for accession
negotiations with the EU.
Foreign trade is completely imbalanced. For several
years, exports accounted for only 10-12 percent of imports.
This exceptional deficit has been reduced by a constant
inflow of money from Kosovo Albanians and Kosovo Serbs who
emigrated during the 1990s and 2000s, respectively (see
Social conditions). In addition, in recent years there has
been a small but growing contribution in the form of foreign
Since the end of the war in 1999, Kosovo has received a
lot of international development assistance. During the
first years it was mainly about building housing and
replacing other destroyed infrastructure. In recent years,
much of it has been used to modernize and expand the
transport networks. Around 2010, Kosovo was the world's
largest recipient of EU aid per capita. In addition to
reconstruction and economic development, assistance has gone
into building democratic institutions and strengthening the
rule of law.
The privatization of business has been slow. Foreign
investors have shown weak interest in this country with
unclear political status, at least in the northern part, and
with a shortage of qualified labor, insecure electricity
supply and weaknesses in transport systems. A large
internationally funded project has become controversial, as
it means that the country is fully investing in lignite for
the future, the most polluting energy raw material (see
Energy). Kosovo has a few large factories, but they are old
and therefore polluting air and water to a large extent.
The state has small incomes. No taxes come from the
informal sector, and inefficient administration and
widespread corruption also reduce tax revenues. This means,
among other things, that there is no means to expand social
insurance and allocate funds to improve health care and
schooling. In several respects, Kosovo has developed
ambitious plans and new laws regarding, for example, the
environment and labor law, but the changes are going very
For information on GDP and other business statistics, see
60% of Kosovo's population still lives in rural areas and
more than half of all households in the country live on
agriculture. A large part of them mainly run
self-sufficiency and they are included in the informal
economy. Agriculture's share of the country's business
sector is therefore difficult to assess. Agricultural
products account for between 15 and 18 percent of the total
export value; the proportion is mainly due to how other
product groups' production varies between years.
Agricultural land makes up 53 percent of the land area.
It is relatively fertile and the climate is suitable for
agriculture, except that drying some years can reduce the
harvest. Over the past decades, agricultural production has
gradually declined. Productivity is low and Kosovo now has
to import 2/3 of all food, mostly from neighboring
More than half of the agricultural land is arable land,
where cereals are grown, especially wheat and maize.
Potatoes, melons and vegetables such as peppers and tomatoes
and berries are products that many small farmers sell in the
local market. Just over one third of the agricultural land
is pasture, a few percent is fruit and vineyards and close
to a tenth is in the trough each year. Most of agriculture
is not market oriented; even in larger farms you consume
half the harvest yourself. Area yield is significantly lower
than in neighboring Albania and Northern Macedonia but
higher than in Serbia.
The agricultural land is extremely fragmented. Two-thirds
of all farms are less than 3 hectares, only 1.4 percent are
larger than 10 hectares. Small farming is very common in the
Balkan Peninsula, but the land in Kosovo is more fragmented
than elsewhere. During the Yugoslav era, the state owned
some land that was run as state-owned large farms, but there
were also a large amount of privately owned small farms. Now
almost 90 percent of the agricultural land is privately
Agriculture was severely affected by contradictions and
wars in the 1990s and by the political and economic
instability that followed. Irrigation systems have been
poorly maintained and have expired, and only 17 percent of
all agricultural land is irrigated. Mistreatment with the
soil also makes erosion more common. Lack of capital and
unclear ownership conditions mean that it is very slow to
rehabilitate agriculture, and it is also a business that
does not interest foreign investors.
Fruit and vegetable growers could compete with
organically grown goods, since the agriculture in Kosovo
uses very little of chemical products. But at the same time,
soil and water are becoming increasingly degraded by
pollution from coal-fired power plants and from the mines'
Livestock management has shown significantly better
results since the mid-00s. It is stimulated by the fact that
domestic demand for meat and dairy products is significantly
higher than production. However, there is a limitation in
the food industry being insufficient. During the Yugoslav
era, agricultural products were taken care of by large state
food industries, but they were closed down. Instead, there
are several private companies, usually with small capacity
and in some cases with inadequate management, production and
Kosovo's agricultural policy is aimed at promoting the
cultivation of vegetables and fruits by small farmers for
export. Increased milk production and breeding of chickens
are also included. But the market organization is weak and
it is rare to offer advice to small farmers regarding modern
farming methods and quality requirements. The state's
investments in rural areas are very limited and they are
mainly directed to infrastructure, such as irrigation
More than 40 percent of the country is covered by forest.
Of this, nine-tenths are deciduous forest, mainly beech and
oak. One third belongs to small private forest owners while
two thirds are owned by the state. The quality of forest and
forestry is not good. During the 1990s, the forests
deteriorated seriously and it has continued thereafter. Only
one third of the forest area is now classified as
ecologically healthy and economically productive. This is a
result of many years of abuses and lack of funds for
investment. A lot of fuel is still being extracted from the
forest and this is counteracting deliberate forestry. Above
all, clearing and thinning are required to obtain a
Funds are also lacking for effective control in the
forest areas. In many cases, ownership conditions are
unclear and spiteful ownership is common. Illegal logging is
a recurring problem and occurs in just over a third of
forest land. This is especially the case in the border
areas, where it also takes place in organized form and
linked to smuggling.
The poor state of the forest means that it is not the
resource base that gives the impression of area. The forest
industry cannot compete internationally when the quality of
timber is low. The situation is considerably worse than in
most surrounding countries where many of the forests have
been certified and can show responsible forest management.
In Kosovo, environmental considerations and sustainable
forestry are something unknown or low priority, even though
they are expressed in the Forest Act.
Investors do not see forestry in Kosovo as a profitable
industry. To change this, the government has decided on
duty-free import of forestry and forestry equipment.
The mining and metal industry is the basis for the
country's economy. In 2011, metals and metal products
accounted for 61 percent of the total export value, and also
included ore and limestone and other industrial minerals,
the proportion was 74 percent. It had then increased for
several years as a result of both increased production and
rising world market prices. Lead and zinc concentrates are
important export goods and the assets of lead, zinc and
silver are considered to be very large.
The longest tradition has been the extraction of lead and
zinc, metals that were used in the area already during Roman
times. They are mined in northern Kosovo, in the area that
was the focus of the war between Serbs and Kosovo Albans in
the late 1990s. During the Yugoslavian era, mining in the
mines of the Trepca Valley and east of Pristina accounted
for 70 percent of Kosovo's GDP, but most of the mining
stopped during the war. The state-owned company Trepca
resumed operations in 2005 and production then increased
until 2011, after which it stagnated.
Continued contradictions between Kosovo Albanians and
Kosovo Serbs, as well as the area's uncertain political
status, have so far failed to find investors to resume a
large-scale mining. This entails major costs for modernizing
mines, enrichment plants and, not least, smelters,
especially as they are heavily environmentally polluting
activities. Furthermore, a large part of the population in
the area believes that privatization would mean losing
control of a natural resource that could then gain foreign
owners. Only one mine in the north and two in the east are
active. In both areas, Trepca also has enrichment plants,
while the company's lead smelter and zinc refinery are
located at Kosovska Mitrovica/Mitrovicë, in an area where
ethnic contradictions sometimes paralyze the business.
Nickel was mined by the state-owned company Ferronikeli
until the end of the 1990s in several mines in central
Kosovo. In a smelter, ferro-nickel was produced for export.
Production ceased largely in 1998 and the plants were bombed
by NATO in 1999. Subsequently, operations ceased entirely
for environmental reasons and pending privatization. Two of
the mines and associated smelters in Drenas were purchased
in 2006 by a multinational company that modernized the
facilities. It is now one of Kosovo's largest companies with
more than 1,000 employees and exports of iron nickel alloys
account for an increasing share of the country's exports.
The operations are severely disruptive to the environment,
as toxic metals are released into the air and water, and
there are no regulations governing such emissions. Nickel
mining increased sharply until 2011, but then stagnated.
Kosovo also has other minerals worth mining. In the past,
chromium, bauxite and magnesium were recovered, but failure
to maintain the out-of-date facilities and also theft of
equipment caused the mining to cease. At present, there are
no resources to resume operations. Adjacent to one of the
closed lead and zinc mines in the north are large deposits
of high-grade halloysite, a rare mineral used in the
manufacture of porcelain.
The energy supply is met to just over 60 per cent with
lignite and 30 per cent with imported oil. Most of the
remainder consists of firewood and a small part of water
Kosovo has, after Germany, Poland and Serbia, the largest
lignite assets in Europe. They are found in several areas
and are of good quality with low sulfur content. In recent
years, lignite has been mined in only two quarries located
near Pristina. However, the assets there are dwindling, and
a new, larger open pit is now being established in Sibovc, a
little further west.
Electricity comes to 97 percent from two coal-fired
thermal power plants, while the remainder is water energy.
The coal-fired power plants produce less than half the
energy they could deliver. They still use old-fashioned
technology and in addition, a lot of electricity in the
transmission network disappears, including through thefts.
The state-owned energy company KEK cannot guarantee a secure
electricity supply around the clock around the country and
has large debts. The company's investments are not enough to
ensure a long-term and secure electricity supply. Demand for
electricity is growing every year and this has meant that
more electricity is being imported every year.
Oil and oil products are also being imported at
increasingly high costs. In 2010, they accounted for just
over 15 percent of the total import value.
There are far-reaching plans to demolish the worst power
plant, thoroughly modernize the other and build a much
larger and less environmentally disruptive coal power plant.
In order to ensure the availability of lignite then the
nearby new open pit in Sibovc is absolutely necessary. All
in all, this is a gigantic economic project for the very
poor Kosovo, and the funding will come from the World Bank,
the US and the European Development Bank EBRD. Such a
massive investment in lignite, which is the most polluting
of fossil fuels, has become increasingly controversial in
recent years, both nationally and internationally. However,
financiers still believe in 2013 that in the short term it
is the only solution to the energy problems there, problems
that need to be resolved as soon as Kosovo is to start a
stable economic growth.
Industry and service
You can only get a vague picture of the various
industries' production and employment, and the same goes for
the service industries. Many businesses exist in the
informal sector and are lacking in official statistics. The
total data is therefore estimated.
The important industrial sectors in the early 2010s are
mining, production of building materials and base metals, as
well as the food, machinery, tools, furniture, leather and
textile industries. The vast majority of companies produce
only for the domestic market.
The manufacturing industry fell sharply during the 1990s
when state-owned companies collapsed, and the decline
continued with an annual decrease in production value of
almost 2 percent during the period 2001–09. There followed
an increase, but still in 2013, the manufacturing industry
has not returned to the 1990 level of production.
For many decades, the mining and metal industries have
been the most important industrial industries. The large
plants now are a lead smelter, a zinc refinery and a nickel
smelter. In the last decade, the construction sector has
expanded, mainly because foreign aid has made it possible to
build housing, roads and other infrastructure. As a result,
the production of various building materials has increased
The industry that has the most employment is the food
industry, which encompasses a number of small businesses
(see Agriculture). The forest industry consists mainly of
small sawmills that use simple technology. Their activities
are limited by the fact that rural infrastructure is poorly
developed. A furniture industry has started to emerge, which
benefits from the fact that there is a large, young
workforce and that the wage situation is very low in Kosovo.
Prior to the disintegration of Yugoslavia in 1991, the
textile industry was the second most important industry
after the mining industry in Kosovo and then had its market
throughout Yugoslavia. That activity reached its peak in
1990 when the 15 state-owned factories employed more than a
thousand textile workers. None of these factories and
companies are now left. Kosovo's textile industry in 2010
comprised approximately 450 private companies, most of them
small and almost all focused on clothing. A few sewing
clothes for foreign clothing companies, among them Kosovatex
in Pristina, which makes jeans. Also export-oriented is
Ramatex, which produces yarns in acrylic and wool.
Reliable statistics are also missing regarding the size
of various service sectors. Around 2010, it was estimated
that about 18 percent of employment in the country was in
commerce and personal services and 16 percent in teaching
and professions with long education. Finance and insurance
services and real estate agencies are still very small
industries. The overall picture shows that Kosovo has a long
way to go before the country has a modern, service-oriented
Since independence in 2008, Kosovo's foreign trade has
grown steadily, but from a very low level. The current
account deficit grows every year. In 2017, the value of
imports amounted to US $ 3,223 million, while exports
yielded only 428 million.
Exports to an even higher extent than previous products
from the mining and metal industry, and production problems
in that sector are immediately reflected in increased
foreign trade deficits. In 2011, metals and minerals
accounted for about 3/4 of export earnings. Furthermore,
agricultural raw materials and, but to a lesser extent,
machinery and electrical equipment, rubber and plastic
products and textile and clothing products are exported.
Imports have a wider composition. There, the most important
commodity groups are fossil fuels and base metals, food,
machinery and transport, electricity and pharmaceuticals and
other chemical products.
Kosovo's trading partners are mainly located within the
EU and CEFTA, the Central European Free Trade Association.
In 2011, about 45 percent of exports went to countries
within the EU, and from that came about 40 percent of
imports. The most prominent countries there are Italy and
Germany, and mainly the import of machinery, transport
equipment and refined oil. To the CEFTA area, 24 per cent of
exports went in 2011 and from that came 37 per cent of
imports. In addition to Kosovo, CEFTA covers six other
countries in southeastern Europe, and among them Kosovo
trades primarily in Albania, Northern Macedonia and Serbia.
In recent years, India has emerged as a trading partner and
trade with Turkey has also increased. At the same time, the
role of CEFTA has been reduced.