1. Challenges of Reindustrialization in Kosovo The Adriatic – Balkan Area from Transition to Integration MUSTAFA Muhamet, ZOGAJ Alban and ABDIXHIKU Lumir University AAB- Riinvest, Prishtina 21-22 May 2010 Ancona

2. Contents Development specificities of Kosovo :  in four decades passed through the industrialization and deindustrialization  it faces the needs for reindustrialization process. Challenges in building competitiveness capacities in condition of small developing economy open market Competitiveness of emerging new industries An evaluation of industrial policies and recommendations for appropriate policy instruments and approaches. …centre of excellence… RIINVEST INSTITUTE

3. Methodology This paper is part of a wider study, developed by Riinvest Institute in coordination with MTI, regarding industrial policies in Kosovo. Desk research, consultation of secondary sources Survey of around 1200 manufacturing enterprises/ businesses with more than 4 employees and less if they are exporters October 2009. …centre of excellence… RIINVEST INSTITUTE

4. Industry output composition comparison: 1988 / 2008 SECTOR Year 1988 (in % )Year 2008 (in %) Nonferrous metals and metal processing 4516 Textile, leather and rubber 211.4 Food 1321.4 Non metals &Construction materials) 632.3 Wood and letter processing 58.1 Graphic industry 14.4 Chemistry 5NA Other 416 Total 100 …centre of excellence… RIINVEST INSTITUTE

5. Main industrial sectors in Kosovo (2008) SectorBusinesses (%)Sales (%)Exports (%)Employment (%) Food and tobacco3821.41528.2 Wood processing208.13.511.6 Construction materials1432.313.222.1 Metallurgy and metal processing716.45213.0 Plastics and rubber34.7124.8 Paper, graphics and publishing34.40.33.7 Textile, leather and shoes21.412.4 Other1311.3314.2 Total100 …centre of excellence… RIINVEST INSTITUTE

6. Industry/manufacturing and other macroeconomic indicators IndicatorIndustry share in % GDP15 Exports56 Imports13 Total employment10–12 Investments20 …centre of excellence… RIINVEST INSTITUTE Kosovo’s composition of GDP accounts for, services 60%, agriculture 25% and industry 15% (Riinvest 2006). Despite this low level of representation, the industry contributes much more to exports (import substitution) and investments. GDP / capita 1760 Euro( $2500), trade deficit 30-40% of GDP; Unemployment about 40%;

7. Industrial Policy for Kosovo ? Dilema over industrial policies  Washington Consensus  New developments and discussions How and emerging industry could build its competitiveness capacities  Horizontal and vertical policies Industry role in economic growth  Industry and other sectors  Which industries

8. Competitiveness indicators Productivity (sales per employee) 100 = average of industry New Entries 2000 to 2009 (% increase in number of businesses) Net Profit Margin [1] [1] Share of Exports to total sales Food processing76+ 97.1%14.715 Wood processing69+ 75.2%15.43.5 Construction materials146+ 86.1%12.513.2 Metallurgy and metal processing126+ 104.1%13.252 Plastics and rubber98+ 120.8%17.612 Paper, graphics and publishing120+ 107.1%15.90.3 [1] [1] Profitability rate shown in the table is declared rate from businesses surveyed. …centre of excellence… RIINVEST INSTITUTE

9. Influence of imports on firms’ products SectorFirms reporting medium or strong influence (%) Leather and leather products100 Textiles and textile products86 Electrical, electronic equipment86 Wood and wood products82 Chemicals, chemical products and man-made fibres80 Rubber and plastic products79 Basic metals and metal processing77 Pulp, paper and paper products; publishing and printing70 Non-metallic mineral products58 Construction46 Food products, beverages and tobacco43 RIINVEST INSTITUTE …centre of excellence…

10. Barriers in Doing Business …centre of excellence… RIINVEST INSTITUTE

11. Industrial Policy Constraints and Policy Instruments Evaluation (1) …centre of excellence… RIINVEST INSTITUTE ConstraintInstrumentScale of presence Finance Direct loans and grants0 Restructuring funds0 Credit line to banks/credit institutions0 Tax incentives1 Venture capital funds0 Iinitial record and evaluation of the intensity of implementation of various policy instruments to tackle constraints in building Kosovo’s industrial competitive capacities : Evaluation of the presence 0- absent; 5 high presence

12. Industrial Policy Constraints and Policy Instruments Evaluation (2) ConstraintInstrumentScale of presence Infrastructure Public investment and infrastructure3 Mixed finance PPP1 Tax incentive to invest in communal resources0 Technology/ Business Park1 Special economic zones0 Information Advisory and business services for domestic firm and potential foreign investors2 Export/trade promotion and marketing with the aim of improving access to foreign markets 2 …centre of excellence… RIINVEST INSTITUTE

13. Industrial Policy Constraints and Policy Instruments Evaluation (4) Innovation Public funding for Research and development0 Tax incentives for research and development0 Legal protection intellectual property1 Raising the level of innovation0 Venture capital finance on management0 Presence of business schools0 Presence of business incubators1 …centre of excellence… RIINVEST INSTITUTE

14. Industrial Policy Constraints and Policy Instruments Evaluation (5) Human Capital Direct training programmes2 Subsidies for skills acquisition0 Investment in education through private initiatives3 Investment in education for specific sectors0 Bursaries for foreign studies1 …centre of excellence… RIINVEST INSTITUTE

15. Conclusions Six manufacturing sectors in Kosovo, that has shown better performance compared to other sectors  food processing and construction materials have the biggest share on the industry output. Create more developed policy environment and conditions  Environment of fair competition for all sectors, rather than just focusing on narrow group of sectors. …centre of excellence… RIINVEST INSTITUTE

16. Recommendations Policy instruments that we suggest are: In the area of finance, we recommend credit lines for manufacturing and exporting businesses, as well as support in introducing venture capital funds and other instructional investors, including also Diaspora participation. In the area of infrastructure, we recommend facilitation of PPP’s. In the area of innovation we recommend public funding and tax incentives for research and development as well as legal protection of intellectual property. Last but not least, on the human capital area, we recommend subsidies for skills acquisition and stimulating investment on private education.. …centre of excellence… RIINVEST INSTITUTE

17. Rcommendations Improvements in general policy areas Specific instruments that address competitiveness constraints - horizontal approach  On the other side, especially due to the weak institutional capacities  Avoid vertical approach expect b for ICT sector

18. muhamet.mustafa @riinvestinstitute.org; ++ 381 38 601 320 …centre of excellence… Thank you very much! …centre of excellence… RIINVEST INSTITUTE