3. Principal industrial and
business sectors

3.1 Agriculture

Kosovo is well endowed with agricultural land. Out of a total surface of 1.1 million ha app. 588,000 ha or 53 % is cultivable land. Currently some 260,000 ha is used as agricultural land in the different fields as illustrated in graph 1.

With some 60 percent of the population living in rural areas and mostly working in agriculture, Kosovo has a long agricultural tradition. Currently, the sector of agriculture contributes 18 percent to the GDP and is the main source of income for the majority of the population. It is one of the most important employment providers in Kosovo and it accounts for 13 percent of the value of exports. Some 70 percent of the local market demand for the agricultural products and processed foodstuff is still being fulfilled by imports.

The arable land in Kosovo is considered to be of good quality. Combined with the temperate climate that prevails throughout the country, very good conditions for the agricultural production exist. This constellation, together with sufficient natural irrigation possibilities, enables Kosovar farmers to achieve high yields per ha in every sub-sector of agriculture. In comparison to other countries, Kosovo additionally offers a very flexible and cost effective labour force and, due to trade liberalization within the CEFTA region, free access to the regional market consisting of 30 million consumers. In addition, Kosovo enjoys a preferential market access to the EU and US markets, with only few products exempted from this prefrential treatment.

Based on the area and average yield per ha, certainly the most important fields of agriculture in Kosovo are the vegetable and grain sectors. In October 2009 the US Agency for International Development (USAID), through Booz Allen, conducted a study that revealed new opportunities for growth. Given the natural resource characteristics of the climatic zones that exist in the country, the study showed that a total of 105 crops can feasibly be grown. Further evaluation of factors such as highest production value, economic feasibility and attractiveness, investment, ease of production and ease of market access, has given a list of top 10 agricultural products for Kosovo. This list is shown in table 1.

Kosovo is already well known as a producer of different types of grapes. It has substantial acres of vineyards largely dedicated to the production of Amselfelder branded wine for sale in Germany. Cabernet Franc, Merlot, Prokupac and Gamay are all planted here. The continental climate and the height of 300-400 meters above sea level provide ideal conditions for vineyards and the development and growth of grapes for wine. There are more than 200 sunny days annually to help ripen the grapes, on par with some well known wine production regions. These advantages create very good conditions for the qualitative wine production in Kosovo. Due to its geographical composition, Kosovo also offers very good conditions for livestock farming. Although, still experiencing a livestock recovery process, farming in this sector has made great strides in recent years – both in numbers and yield.

In particular, there are two main factors in favour of livestock investments in Kosovo. Firstly, the country offers very good natural and climatic conditions for various types of livestock farming. Secondly, market demand for livestock farming products is currently much higher than domestic production. The planned revitalisation of the food processing industry will furthermore create greater opportunities for livestock farming in the future.

Currently, the most significant obstacle remaining for Kosovo's meat processing companies is the reopening of export markets. With Kosovo's geographical location and its close proximity to non-EU countries such as Albania, Montenegro, Bosnia and Herzegovina, Croatia and Turkey, a short-term pragmatic approach could be to initially focus on meat exports to these destinations, with the possibility of expanding into EU markets in the next stage.

There are numerous agro-industries in Kosovo with high market potential, offering potential investors immediate access to suppliers of primary products, substantial inherited capital, technical capability and promising market prospects. The highly competitive workforce and the custom and tax incentives, further underscore the opportunities available in this business field in Kosovo.

Also taking into consideration the low prices of primary products, this field is very profitable and has the potential to expand into foreign markets. Recognising the potential, some foreign companies have already started to cooperate with local partners and are taking advantage of Kosovo's friendly tax and customs systems allowing them to offer competitive products in European markets.

In order to improve the competitiveness of the agricultural and food processing sector and consequently stimulate the local production, the Government of Kosovo has recently introduced different incentives for farmers and processors. The zero percent customs rate for most agricultural inputs and capital goods, together with VAT exemption on a wide range of agricultural inputs, have been designed to strengthen local production and enable it to further compete with foreign products.

The promotion of the processing businesses, support for exports and simple access to favourable financial means are some additional steps that, together with sufficient investor interest, will turn around this segment of Kosovo's economy and lead to the creation of a large export business.

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3.2 Wood processing

Forests and similarly covered surfaresmake up around one third of the total territory of Kosovo and represent a resource of special importance for the county's economy. With the annual value of wooden products and other benefits produced by forests reaching EUR 50 – 75 million, this sector represents a livelihood for 10 percent of the Kosovar population.

Due to the sufficient availability of inputs, Kosovo offers great investment possibilities in every single wood processing cycle. The annual allowable amount of felling is currently slightly below 1 million m³ with Beech and Oak being the main species. Potential for foreign investors ranges from doors and windows to a variaty of furniture production. There is currently a large pool of companies in Kosovo that would make good outsourcing partners.

A large amount of traditionally gained experience, great knowledge in wood processing, and a cost effective labour force make the Kosovar wood industry particularly well suited for the manufacturing of hand made luxury products. In addition, most sawmills in Kosovo only saw logs into rough, mixed grade lumber, and are not yet exploring, the potential value of waste products, i.e. sawdust and wood chips.

Taking into consideration all these benefits, Kosovo's wood processing industry has experienced significant developments during the past years. Due to better organisation and sufficient service-providing clusters, Kosovar producers have been able to increase the quality and product range, thereby allowing expansion into foreign markets. Currently, Kosovar wood processors supply furniture both for the domestic and international markets (for example hotels) to companies in Germany, the Netherlands, Switzerland and other neighbouring countries.

Through the efforts and engagement of the members of the rich institutional environment of the wood industry, Kosovo offers various incentives that aim to further promote and facilitate primary and secondary wood production. The Kosovar Government has recently approved a zero customs rate for the imports of machinery and capital goods related to this sector, while further negotiations for the exception of wood raw material from VAT and customs are currently underway.

3.3 Information Technologyand Telecommunications

The IT sector in Kosovo, including Internet Service Providers, has experienced a remarkable development since 1999. From being inexistent 10 years ago, Kosovar companies in the IT sector offer today high quality services and the latest technologies to their customers both local as well as to foreign companies who want to outsource their software development and/or call and support centres.

Kosovo has the youngest population in Europe. It is both skilled and multilingual, with English being only just short of an official language due to a high international presence. In addition, many Kosovars who have studied abroad are now returning to Kosovo, bringing with them skills and know-how.

Today, public and private education institutions in the IT field, supported by companies such as CISCO or Microsoft, provide education to thousands of young Kosovars while the demand for this form of training is still rising.

Be it the outsourcing of software development, data management, establishment of call and support centres or other consulting services, Kosovar companies can offer you high quality services at low costs. The recent acquisition of the largest IT company in Kosovo, Pronet, by the Assecio SEE is proof of high opportunities in this sector in Kosovo.

Kosovo has two mobile telephone operators and two virtual mobile operators. The state-owned mobile telephony operator VALA, has currently over 900,000 users, while the second private owned mobile telephony operator IPKO – Telekom Slovenian, serves approximately 300,000 users and has a territory coverage of 99 percent. The state owned mobile telephony operator will soon enter the privatisation process and represents an attractive investment opportunity for well established Western telecom companies.

In addition, great opportunities for foreign investors are available for fixed telephony, VoIP, cable TV, etc.

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3.4 Construction

During recent years the construction industry has become one of the most important sectors contributing to Kosovo's economic growth. The construction sector in Kosovo has so far utilised several hundred million Euro that were primarily used for the construction of new homes, or for the rehabilitation and development of the road infrastructure.

The construction industry remains a sector with highly promising economic potential for Kosovo. Roughly estimated, in order to meet the existing market demand, in the next few years Kosovo will need some 50,000 new apartments, including the associated infrastructure, such as roads, kindergartens, schools, leisure facilities, restaurants etc.

A further factor which is helping to boost the development of this sector is the demand for road and highway construction. The Government of Kosovo has set itself a goal to connect the country in three main directions with the most important international road corridors in Macedonia, Albania and Serbia. The construction of a highway, which will connect the northern and central parts of Kosovo with Skopje (Macedonia), is a mid-term goal of the Government. A much more important project represents the building of a highway between Merdare-Kukës-Durrës, which will connect Kosovo with the sea port of Durrës, Albania. This highway will become a part of the Trans European Corridor X that will connect the Adriatic Sea with the Western Europe. The construction work for this highway began in May 2010.
In addition, as a result of an accelerated economic development Kosovo is facing an increased demand for commercial premises such as production facilities, office space and hotels.

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3.5 Automotive components industry

The origins of the automotive components industry in Kosovo date back to the 1960's, when the first large scale auto components manufacturing companies were founded. Although these manufacturing units were primarily established to supply different parts for the production of Yugoslav vehicles, they very quickly penetrated foreign markets and cooperated with well-known European and American automotive component manufacturers. The two best known flagships of automotive component industrialization in Kosovo were the Ramiz Sadiku, which produced primarily car seats and small vehicle parts, and the Shock Absorber Factory Prishtina, which produced shock absorbers for various well-known brands such as British Armstrong, German Susta as well as French Peugeot among others. Between 1989 and 1990 the Shock Absorber Factory produced 3.3 million units each year and employed over 1,500 workers.

With the loss of foreign markets as a result of political circumstances during the 1990's, the Kosovar component manufacturers were faced with immense financial problems and consequently many of them had to rethink their business philosophy in order to survive in the global market. Although the current output of these enterprises is still considered to be low, re-established links with the traditional partners bode well for a prospective development of this sector. The existing technology, large capacities and ample knowledge allow the automotive component industry to produce and support any Original Equipment Manufacturer [OEM] with parts at a competitive cost.

Furthermore, the trend of shifting production to Central and Eastern Europe makes the Kosovar automotive component industry even more interesting for investors wishing to benefit from increasing opportunities in the region.

3.6 Mining and energy

Kosovo has an enviable endowment of natural resources. At 14.7 million tonnes, Kosovo possesses the world's fifth-largest proven reserves of lignite. This mineral is of outstanding importance for the country, representing in the long term one of the important factors for the generation of power.

Taking into consideration the high demand for energy in the local and regional markets, the Government of Kosovo is currently finalizing major projects regarding new lignite exploitation and power generation facilities. These projects will offer unique opportunities for companies willing to engage in the energy and/or mining sector(s) in Kosovo.

Apart from lignite fired energy generation capacities, Kosovo can also offer vast opportunities in the renewable energy sector. Currently some 98 percent of electrical energy is produced through thermal power plants. However consistent with the obligations of the Energy Community Treaty for South-East Europe, where Kosovo is a signatory party, Kosovo will have to cover eight percent of the electrical energy consumption with renewable energy resources by 2016. The Ministry of Energy and Mining of the Republic of Kosovo has already conducted a pre-feasibility study for 11 new sites where hydro power plants can be constructed. The expression of interest for these HPPs has been internationally disseminated. In addition, feed-in tariffs for different renewable energy generation capacities have been put in place. The Kosovo resources for renewable energy are shown in table 2 below.

In order to improve the efficiency of the distribution system, the Government of the Republic of Kosovo is planning further investments in distribution capacities, as well as the privatisation of the currently state-owned energy distribution company which has already been unbundled from the state-owned Kosovo Energy Corporation.

In the mining sector, and in addition to lignite, base-metal mining has been a mainstay of Kosovo's economy since pre-Roman times. Modern mining in this field began in the 1930's, when the mining complex Trepça was revamped by the British Company "Selection Trust". Zinc, lead, silver, gold, cadmium and bismuth are exploited along Trepça's mineral belt.

The lead and zinc reserves of Kosovo are estimated to be around 48 million tonnes, those of nickel to 16 million tonnes. Chrome reserves amount to 89 million tonnes and bauxite reserves to 13.2 million tonnes.
There are different mines that can either be acquired through the ongoing privatisation procedures or can be revamped by entering joint ventures with private owners. For details regarding the specific mining possibilities within the privatisation process please check the web-site of the Privatisation Agency of the Republic of Kosovo at www.pak-ks.org.

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3.7 Textiles

With over 200 years of tradition, textiles were the second largest industrial sector in Kosovo, after mining. In the past, products from Kosovar manufacturers targeted the local market, as well as other markets throughout the former Yugoslavia, Western and Eastern Europe and the United States. At its peak in around 1990, each of the 15 socially owned enterprises (SOEs) engaged in textile production employed more than 1,000 people and sales totalled some 35 million Euro.

Recent developments in the region have frozen the primary trading links of the textile industry, causing lower production rates and resulting in a lack of competitiveness with foreign products. As a result, a major share of former SOE workers has become redundant. A minor part has, however, established private textile companies. Currently there are some 451 private companies engaged in textile production, out of which 90 percent are final product manufacturers. Although the textile industry has experienced a significant recovery during the past years, the majority of businesses are still small and take the form of micro enterprises. Consequently, they cater solely for the Kosovo market and are primarily geared towards a niche market.

Analysis indicates that some 55 to 65 million Euro in exports could be reached, assuming that trading links with former partners can be re-established. There is considerable scope in this sector for investors to recreate a vertically integrated manufacturing cluster so that Kosovo would once again produce finished clothing from thread.

In particular, Kosovo offers three major benefits for investors wishing to revamp one of the existing SOEs or found a new textile manufacturing company. These are:
• A cost effective, well skilled and experienced work force
• A solid base of technology that can be acquired through the ongoing privatisation process
• Numerous subcontracting and outsourcing possibilities

With the existing know-how, cost effective labour force and other comparative advantages that the country offers, including the friendly business and investment environment, the textile industry in Kosovo has therefore the potential to become highly competitive internationally.

3.8 Tourism

The natural wealth of Kosovo represents high quality tourism resources. The description of Kosovo's potential in tourism is closely related to its geographic position. Kosovo's position in south-eastern Europe, with a central location in the Balkan Peninsula, represents a crossroad which historically dates back to Illyrian and Roman times.

The mountainous south of Kosovo has great potential for winter tourism. One of the most interesting opportunities for foreign investors in this sector is the ski resort Brezovica in the Sharr Mountains. The resort, situated between 1,700 and 2,500 meters above sea level, will be offered for privatisation by the Privatisation Agency of Kosovo very soon. It offers excellent weather and snow conditions, as well as long ski seasons from November to May.

Assets of Brezovica include three hotels with 680 rooms, two restaurants and nine ski lifts with the capacity to transport 10,000 skiers per hour. Through its proximity to Prishtina Airport (60 km) and Skopje Airport (70 km), the resort is a possible destination for international tourists and has the potential to become the most favourable winter tourism destination in the Balkans.

Also in the Sharr Mountains in the very south of the country, bordering Macedonia and Albania, Kosovo is offering about 22,000 hectares of largely untouched land in the mountainous area, belonging to the SOE "Sharrprodhimi" for privatisation. The region offers excellent tourism opportunities, such as skiing, eco-tourism, paragliding, mountain biking, rock climbing, trekking, kayaking, horse riding, etc. The Sharrprodhimi land in the municipality of Dragash is stunningly beautiful. It is clearly a remarkable property for eco-tourism, and will only be sold to a proven investor who is committed to a sustainable and rational development program which will have strong local support.

Apart from the above-mentioned tourism resorts, Kosovo is generally rich with mountains, artificial lakes and rivers and therefore also offers prime possibilities for hunting and fishing.

The area of wellness in Kosovo also offers great potential for development. The numerous thermal springs of Kosovo are well known in the region for their healing effects. Foreign investors in this field will find high demand in the regional and domestic market.

The widespread production of rare artisan crafts in Kosovo, such as the Filigree (silver), represents an attraction for foreign tourists. In addition, Kosovo has the potential to develop cultural tourism with numerous religious and other sites with extraordinary cultural and historical value.

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