Kosovo Prime Minister Isa Mustafa: Economic Development & International Support

The American Times Presents: Prime Minister of Kosovo, Mr. Isa Mustafa

 

Good Afternoon Prime Minister. We are happy to have had the opportunity to meet with you at such a busy time during the first 100 days of your mandate. You’ve recently been meeting a large amount of international delegations; from the World Bank to US VP Biden this past week in Munich. What are some of the subject matters you are discussing with your international partners during these engagements?

Thank you. Exactly that, the core items discussed was the current status of our relations. From an EU perspective we are in continuous talks regarding fulfillment of criteria for EU membership, further international recognition as an independent state as well as integration for NATO membership where we are eager to play our contributing role as a future member in humanitarian causes and the war on terrorism. Additionally, discussions with the US are often in the context of our dialogue with Serbia. We are eager to keep this dialogue open and continuous in order to normalize our relations with Serbia so as to leave that chapter behind. With this in the past we can wholly focus on the development of Kosovo’s citizenry.

Regarding domestic affairs we are giving priority to economic development and employment. Our governing program for the next 4 years will be approved next week (02/15) and just 2 weeks ago we approved our national economic reform program; all which is aligned with the requirements set forth by the European Commission (EC) and European Union (EU).

What are some of these reforms, specifically?

Fiscal reforms are a key aspect to this new program; including, tax breaks (corporate or income) in the initial years of a foreign investment.

And these fiscal incentives are already in place?

We are currently in the process of implementing them through the Ministry of Finance. Also we are in the process of integrating the tax administration with the customs office in order to simplify the process of collecting revenues and lowering costs. All of this is in an attempt to eventually replace the duty and VAT fees collected at the borders, which currently act as the largest contributor to the national budget, with domestic and personal income taxes.

 

But the establishment of a legal framework also extends to the foreign investments and their requirements. We need to have this concretely in place in order to gain their full confidence. This we are taking seriously and working hard on. The aim is to minimize the amount of time it takes to begin operations in Kosovo because when they have to wait 5-6 months they simply move on to other nearby countries.

 

How important is international cooperation through assistance when setting and implementing these reforms and fiscal tactics; specifically, cooperation with the US?

Pertaining to the US we are interesting in continued cooperation in all fields. Economically we have some investments from the United States with the Kosova Motorway and some new opportunities with the power plant. Moreover, we are interested in advancing cooperation in the cultural and educational fields. The latter is of noteworthy importance. We’d like to send more Kosovar students to the US to study as we’ve noticed they are coming back with valuable skills and a particular mindset that serves the Kosovo market quite well from a management and entrepreneurial perspective. These people come back and start businesses, they employ people, as such, we view this agenda as critical to domestic economic growth.

It’s also important to know that the US is crucial in helping us establish future international recognitions of Kosovo as an independent state; the US has been of tremendous help in this regard. But we want to start contributing ourselves in the international arena through humanitarian missions; we can do this through the Kosovo Security Force (KFOR) and later, with a Kosovo Army.

Many transitional country citizens rely on diaspora for remittances. So when you mentioned international financial assistance through the World Bank and so forth, what is the strategy through supporting, on your own, the development of the economy? What are some other sectors of opportunity for foreign investors?

Remittances from abroad are indeed a factor in our economy, amounting to about 500million EUR a year. These monies go to supporting domestic consumption which in turn increases the aggregate demand in the market. The issue is that these funds do not go towards investments and, therefore, job creation.

The agricultural sector, however, does offer opportunities to invest and we have increased the budget line for this sector by way of subsidies and grants. Currently though we are looking at changing the way we allocate subsidies to output functions rather than to land owners. We are doing this because in most cases the land owners do not act on cultivating the land for production. Further, we can invest in the food processing industry and we reach two goals with this: open new job opportunities and improving the trade balance.

Recently I met with a young Kosovar who studied in the US for 3 years who expressed the exact same sentiment. He wants to contribute to his country by producing sweet potatoes for sale in the internal and external markets. How does an individual like that apply/obtain some of the grants and subsidies you are speaking about?

We have primarily subsidized the agricultural sector and now we are looking at extending that to the youth and women segments as they represent the highest groups for unemployment. So we are in the process of establishing a fund for development within these two groups. To fund this we would use some of the proceeds from the privatization process with another part coming from the national budget as well as the public and private sector taxes. It’s through analyzing these resources that we will determine the level of support we can offer through an aggregate fund. For some we will offer guaranteed funds because many of the start-ups do not have any collateral to offer banks in return for funding. Others we will subsidize the interest rate to some banks when they can apply for traditional loans.

What sectors are the two groups, youth and women, operating primarily?

We’ve seen a lot of the youth opening businesses in the IT sector and women in the food processing arena. A few days ago we met with the EBRD who is extending a line of credit for women through TEB bank.

There are several moving parts to developing this fund. Is it fully operational beyond the aforementioned EBRD credit line or are you looking at a time horizon for full deployment?

We still need time to establish the full legal framework in order to see the full effectiveness of this program, which in turn limits our present capabilities in executing large scale projects. Having said that, I think most of these things will be accomplished by the end of the year [2015]. But the establishment of a legal framework also extends to the foreign investments and their requirements. We need to have this concretely in place in order to gain their full confidence. This we are taking seriously and working hard on. The aim is to minimize the amount of time it takes to begin operations in Kosovo because when they have to wait 5-6 months they simply move on to other nearby countries.

This dedication is promising to hear. You mentioned earlier incentives like land and taxes; what are some challenges that still exist that may deter FDI and how are you addressing these issues?

Currently, I think the laws for FDI are not bad. The problem was implementing the laws and the perception of corruption and organized crime. At this juncture we need to work diligently on closing all loopholes where there is the possibility of corruption, especially in regards to foreign investors. All the procedures must be established in the most transparent way and develop a legal course of action against all those accused of corrupt behavior and activities. More, we must address any issues of repatriating profit or reinvesting profits and taking measures to endure the property of foreign investors is safe and secure.

Finally, for FDI to thrive, we need to fulfill two final elements required of us: instilling confidence that government policies, specifically, fiscal policies are stable and solid reforms in the education system so that foreigners will not absorb additional costs of in-house training.

We are aware of some instances where firms must provide in-house training, in fact we’ve interviewed one for this very magazine. It shows that the government is at least aware of many issues that currently need addressing. However, many issues cannot be uncovered unless there is a continuous ear from the government listening to the business communities’ concerns. Do foreign investors have an open and willing partner with your new government?      

We are opening up dialogue with the business community as we speak, foreign and domestic. Every week we are inviting different businesses and groups here to the government building to discuss topics of concern. We are also taking the ministers who work in the economic sectors who will begin addressing these concerns and creating a degree of synergy between the various ministries in order to do so effectively. Through this we are identifying impediments in the system and finding ways to rectify them. Naturally, we are engaged with the various economic chambers, specifically the AMCHAM, which is very active in Kosovo.

A few weeks ago I visited Ferizaj to speak with local business owners. Usually we think we know about all the problems but we discovered when you actually meet and listen to them there were a lot of things we were never privy too, so it’s very important to continue this communication. And it’s not just problems we learn of, we also gain new knowledge through these talks as well.

We’ve looked mostly at Western partnerships. What type of regional initiatives and collaborations is Kosovo a part of?

Following the Berlin conference on the Balkans last August we are beginning collaboration with other Balkan nations on matters of energy and infrastructure harmonization in the region. This collaboration means that all the participant nations would apply jointly to the EU and other bodies for large scale projects in the aforementioned areas. A key thing for us is opening up the railway and road networks with Albania, Macedonia as well as with Serbia. Of course, this would lead to a decrease in transportation costs for regional producers and imports from overseas coming into regional ports.

All of these ambitions are positive to hear and I hope they become realized, for the sake of the people. If you were to accomplish one thing during your mandate, what would that be?

What I’d like to see fulfilled is that we have an economy that can absorb all the new entrants into the labor market, of which there are 25,000 every year. This ability is a barometer of overall economic strength. With developmental support I think we can do this. I think economic stability can also help normalize relations with Serbia as job creation would of course include our Serb population who would benefit like all others. I know this is greatly ambitious but if we all orient our efforts towards this goal we can achieve it in the coming years.

If we could approach one type of investor in the US that you see as an ideal FDI what would that investor look like?

Looking at the economy of the US and its strengths as well as our current market structure I would like to see something from the energy sector. Based on our own expert’s opinion the US has the best technologies as well as the best environmental standards, as such, we’d love to see a strong firm come in to invest within our energy sector. We would also like to see further investments within our natural resources, primarily minerals. All of these require large investments and the US with its large companies can certainly handle the job.

We’ve already had the US-Turkish roadway infrastructure project completed and currently underway. This I believe should act as a nice precedent to other firms looking at large scale projects in Kosovo, confidence should be rising. Furthermore, finance and environmental areas require further assistance.

Wrapping up, we’d like to ask of you a personal message, as Prime Minister of Kosovo, directed specifically to US investors on ‘why’ Kosovo?

We have a great belief in the United States and have a strong appreciation to them for their past and current assistance. Mostly, we will endeavor to maintain a permanent relationship with them in furthering democracy and enhancing economic cooperation.

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