Young people at at traffic light in Pristina, Kosovo

Economic situation High unemployment and a weak infrastructure

Even before the outbreak of conflicts within Yugoslavia, Kosovo was a structurally weak region, with a high illiteracy rate, a lack of infrastructure and a strong dependence on agricultural production.

When war broke out, it affected the province, as it then was, particularly severely, with large parts being destroyed. The country’s declaration of independence was linked to the hope of economic and labour market revitalisation. So far, this hope has not been realised, and Kosovo remains one of the poorest countries in Europe.

Massive social and economic problems are holding back the country's development. The big challenges facing Kosovo are the high rate of unemployment there (averaging 25 per cent and rising to almost 50 per cent for young people aged between 15 and 24); a weak infrastructure; low productivity; an inadequate energy supply; a lack of access to financial services; and a lack of stability and incentives to tempt investors. In addition, the country has to contend with huge environmental problems, in particular air pollution caused by coal-fired power stations, outdated industrial plants, road traffic and the burning of refuse at illegal dumps.

No stable upswing in sight

It is estimated that the informal sector generates some 30 per cent of Kosovo's gross domestic product (GDP). This means that labour laws and fair competition are being undermined. The country's enterprises lack well-trained workers, as those who are young and qualified leave the country, often ending up in Germany.

The dynamic economic growth that Kosovo has seen in the past few years has not been enough to overcome the region's historical under-development. In fact, Kosovo experienced a severe setback in 2020 as a result of the COVID-19 pandemic: its economic output slumped by 5.3 per cent. The International Monetary Fund (IMF) is predicting annual economic growth of between 3 and 4 per cent over the coming years. The country's further economic development will also determine whether the country sees peaceful, stable development.

Development potential

Kosovo has interesting potential as an attractive location for business. Geographically, the country is well-positioned at the centre of South Eastern Europe, and it has good prospects of joining the EU and the Central European Free Trade Agreement (CEFTA). In addition, Kosovo has a young labour force with good foreign language and IT skills; mineral resources such as lead, zinc and ferronickel; and good conditions for generating electricity from sources such as wind power and solar energy.

Kosovo's agricultural sector is currently made up largely of family-run subsistence farms. Productivity could be significantly increased given the country's fertile soils. This would help both to improve the country's food production and to create more jobs.

As at: 11/03/2022