Kosovo A country without an economy?

http://internationalviewpoint.org/spip.php?article1431

INTERNATIONAL VIEWPOINT (UK)

February 2008

Kosovo A country without an economy?

Adam Novak

Media coverage of Kosovo's recent Unilateral Declaration of Independence has
focused on the risk of conflict with Serbia, and the broader geopolitical
risks for unresolved separatist struggles in Bosnia and the former Soviet
Union.

Many in the international peace movement blame the western powers for the
violent break-up of former Yugoslavia. But Kosovo's independence reveals
another dimension of the west's criminal responsibility in the destruction
and re-colonisation of Eastern Europe since 1989. The newly independent
state of Kosovo has no economy to speak of, and its poor and undereducated
population are dependent on remittances from family abroad, smuggling, and
foreign aid.

Newly-independent Kosovo is Europe's poorest country. Its per capita GDP is
$1,300), which is about the same as Ghana or Burkina Faso, and only one
tenth of the level in the poorest countries in the European Union, Bulgaria
and Romania. Kosovo's subsistence economy remained virtually unchanged
throughout the eight years of UN rule, and the standard of living of its two
million people is still lower than before the Serbian government imposed
central control of the province in 1989.

How is such crushing poverty possible in the heart of Europe?

Kosovo was always the poorest part of former Yugoslavia, with a GDP of about
10% of that of Slovenia, the richest part of the federation. But Tito's
Yugoslav system ensured investments in infrastructure and industry, mass
education, and the creation of autonomous institutions, all for the first
time in Kosovo's modern history. In the late 1980s, Serbian nationalist
leader Slobodan Milosevic allowed Kosovo's small Serbian minority to seize
these resources and political power, provoking a massive movement of
non-violent resistance among the Albanian-speaking majority. Albanians were
expelled from industrial and civil service jobs, and most families survived
on a mixture of small-scale agriculture and remittances from family members
working abroad - mostly in Germany, Switzerland and the USA.

The NATO war against Serbia in 1999 destroyed most of the industry and
infrastructure, either through bombing, or by looting as the Albanian
population took their revenge on the Yugoslav regime which had humiliated
them. A United Nations administration was rapidly put in place, and ran
Kosovo as a protectorate of the western powers until the declaration of
independence in mid-February this year.

This UN administration completely failed to develop economic activities that
would lift the population out of poverty. So much western food "aid" was
dumped into Kosovo that most of the local farmers went bankrupt, and were
forced to kill their livestock or abandon their fields. A free trade regime
was imposed, and the Yugoslav Dinar replaced as legal currency by the German
Mark, (Kosovo therefore became a de facto part of the Eurozone on 1 January
2002). As a result, Kosovo joined the other EU protectorate, Bosnia, as a
marginal but easy-to-penetrate market for west European companies, while
local companies found themselves unable to compete, and separated from their
former markets in the rest of former Yugoslavia.

One of the paradoxes of Kosovo's de facto separation from Serbia in 1999 is
that - since free trade always benefits the strongest at the expense of the
weakest - Serbian companies have been able to capture a large part of the
Kosovo market, even providing the basic foodstuffs which Kosovo used to
export to Serbia. Serbia is now Kosovo's largest trading partner, while
Kosovo has failed to penetrate either Serbia or any of the other ex-Yugoslav
markets. Kosovo has a disastrous balance of payments; in 2007, Kosovo
imported 1.5 billion euros worth of goods, but exported only about 150
million euros worth.

While it did little to help the small farmers and workshops that dominate
the Kosovo economy, the UN administration expended considerable effort on
the introduction of a textbook-style neoliberal legal system, ensuring that
Kosovo's natural resources (coal, lead, zinc, nickel, farmland) and the
handful of remaining industrial and food-processing companies can be easily
acquired by western investors, that civil infrastructure can only be built
by public-private partnerships, and that private investors will be able to
take over the most profitable part of public services like health and
education.

The electricity sector illustrates the economic dilemma facing Kosovo. The
territory has persistent power cuts and 'brown-outs.' The electric company
produces 800 megawatts of electricity each day, about 80 percent of what is
needed. It can't afford to buy more from neighbouring countries, because,
during the years of conflict and UN administration, almost everybody stopped
paying, and many homes and business are connected to the power grid
illegally. Western advisors have proposed privatising the electricity
supplier, so that private companies will be responsible for enforcing
payment - and for cutting off poor people's heat and light. Foreign
companies are expected to build a modern coal-fired power station in
exchange to unlimited access to the estimated 15 billion tons of brown coal
lying in the earth beneath Kosovo. The EU will help create a regional energy
market to swap surpluses (Kosovo could import from Balkan countries with
hydroelectric power at high season, and export back to them when water
levels are lower).

It would be better for Kosovo to build up a state utility, ensuring that
non-renewable resources are used in the national interest, (The ground is
also though to contain 20 billion tons of lead and zinc and 15 billion tons
of nickel). Only a public utility could ensure that the painful move towards
enforcement of energy bill collection is socially responsible. In private
hands, the energy company may provoke a massive non-payment campaign, as
followed utility privatisations in South Africa and Bolivia. Investors are
therefore trying to get the government to guarantee payment for minimum
supply to local households, and to allow the privatised utility to double
production, but sell all of the extra capacity abroad, effectively ignoring
the needs of the people who the coal belongs to.

Having destroyed all forms of Yugoslav state or social ownership, the UN has
created a Kosovo state administration that lives from import duties, a sales
tax, and subsidies from the European Union. Independence will allow a merger
between the UN and national administrations, but with former UN employees
(ie most educated Kosovars who can speak English) used to much higher wages
than in the national administration, their integration is likely to increase
the corruption of the civil service, as they try desperately to maintain
their western lifestyle.

Regional warlords, bosses of the UCK militia which confronted the Serbs
during the NATO war, are responsible for the implementation of state
functions in most of the territory outside the capital, Prishtina. They also
control the most lucrative export industries, which are all illegal. Kosovo
is part of the main transit route for drugs entering the European Union, and
is a major element in the trafficking of women into the European sex
industry - some studies suggest that 30% of trafficked women worldwide are
controlled by Balkan gangs. Kosovo (and the neighbouring post-Yugoslav state
of Montenegro) are also the main centres of smuggling of tax-free cigarettes
into the EU. As many Kosovars observe cynically, all these areas of activity
depend on cooperation between Kosovar and Serbian gangs, and show that, at
the top, there is a willingness to forget the war and work together.

The central government will try to weaken the warlords by incorporating some
militias into a Kosovo army, which has already been promised to the US and
NATO for any missions abroad. This mercenary role (which harks back to the
Albanian role within the Ottoman empire) offers the west, particularly the
USA, a motivated and dependable force of pro-western Moslems, for potential
use in Afghanistan, Iraq, or in a future move against Iran.

Meanwhile, the population continues to get by as best it can, in an economy
dominated by small-scale trading, subsistence agriculture, smuggling and
crime. The largest employer is the public sector, the private sector
consists mainly of shops and most businesses employ only two or three people
at minimum wage. Remittances from emigrant workers make up about 40% of GDP.
One third of Kosovo's two million residents are under the age of 14, and the
birth rate is the highest in Europe. This means that landholdings are
getting smaller and smaller, and since the terrain is too hilly for
mechanisation, productivity is too low to compete with imported - Serbian
and EU food products.

The Serbian minority in Kosovo (about 10% of the total population) is the
worst off, because it has lost its former privileges, and lacks contacts to
Kosovo's new bosses. Many young Serbs have already emigrated to Serbia
proper, and the remaining population would probably do the same, if they
could find a buyer for their farmland.

In economic terms, the NATO-Serbia war and UN protectorate over Kosovo has
meant a decade of stagnation. In 1989, the GDP per capita in richest part of
Yugoslavia, Slovenia, was 10 time higher than in Kosovo. Today Slovenia is
part of the EU, with a GDP per capita 16 times higher than Kosovo, and five
times higher than Serbia.

Few voices have been raised against this outrageous failure of the west. And
yet, Kosovo has a small, but well educated and westernised middle class,
based in the civil administration set up by the UN mission, and the army of
private contractors and "Non-Governmental Organisations" which the west used
to reorganize the society and provide a social base for its continued
presence. Profoundly opportunistic, these middle class layers would prefer
to work for the foreign donors, who pay better and are less violent, but, as
independence approached, many have attached themselves to one or the other
of the warlord factions. Unlike the rest of former Yugoslavia, very few of
these NGO activists have tried to organize or represent the disadvantaged
majority in society, let alone resist the twin predators of neoliberalism
and mafia.

This westernized middle class has had a central role in articulating and
transmitting the dominant ideology in today's Kosovo, a mixture of
neo-liberal obsession with private enterprise, coupled with a xenophobic and
clannish ultra-nationalism that justifies aggression against Kosovo's
national minorities, and legitimizes the various illegal traffics. By
expelling Albanians from the civil service and socially-owned enterprises,
Serbia's "communist" regime definitively severed Albanian attachment to the
social benefits of the Yugoslav system, and accelerated a return to pre-WWII
self-reliance and clan-based solidarity.

Kosovo nationalism also includes a massive sense of entitlement, with most
people believing that the European Union should provide massive and
indefinite financial support to Kosovo, to make up for its failure to
protect Kosovars in the past.

While the EU can be expected to bankroll the Kosovo state in the foreseeable
future, this will be conditional on the economy remaining open to western
investment in land, industry and services, and on a partial reduction in
smuggling and criminal activities. The EU will also subsidise infrastructure
projects (there is still no decent road link between landlocked Kosovo and
the Albanian port of Durres), but it will be difficult for Kosovo firms to
win more than a minor share of these contracts. Outside mining and
electricity production, the only other potential investments are likely to
be in the footware and textile sectors - Turkish and Greek companies are
already investing in neighbouring Albania, and the Kosovo government can be
expected to set its minimum wage so low as to attract some of this business.
East European governments are already engaged in a 'race to the bottom,'
with successive rounds of cuts to tax and business regulations to attract
investors. Though it is hard to see how Kosovo can compete with neighbouring
Macedonia, which offers a 10% flat tax and VAT rate, with generous tax
holidays, excellent road and rail links to Europe, and lower levels of
corruption and extortion.

While the EU will insist that Kosovo opens its economy to western
investment, it will continue to prevent legal migration of Kosovars into the
EU labour market, creating an explosive social situation for the government
of the newly-independent country.

In any case, the economic benefits of integration into the European space
will be less than those provided to Kosovo during the Yugoslav period,
before the International Monetary Fund (IMF) took charge of Belgrade's
economic policy in the mid 80s.

Adam Novak is the former representative of the Canadian NGO Alternatives in
Eastern Europe.