International Journal of Business and Management Studies,CD-ROM. ISSN: 2158-1479 :: 3(1):151�165 (2014)

This paper examines the main trends of FDI (Foreign Direct Investment) in Kosovo. Kosovo

as a country that had just emerged from war in 1999, with frequent changes of laws and

adoption of economic liberalization measures made very large strides in democracy and

international recognition of statehood. Fluctuations of FDI in Kosovo in the past 12 years link

these directly in the two macroeconomic indicators clearly express how important is the

stability of the country. GDP growth rate in Kosovo with a great opportunity for investors, one

more chance for the local population to find a new job. The perception of investors that there

is no risk to invest in Kosovo increased FDI flows. Success of Kosovo to boost foreign

investment becomes accessible if not delayed accession to the EU. All these factors have led

to a satisfactory level of the FDI in Kosovo, but economic and political context is crucial.

Kosovo has significant structural mismatch economy compared to countries in the region. This

information allows us to create a more favorable institutional framework for investment,

facilitates an investor to take a decision to invest quickly. From an investment perspective in

Kosovo economic structure, trends seen that capital to invest in some sectors. Investments in

the industrial sector (manufacturing) in mining, energy, construction, trade and services have

been attractive to foreign investors.

FDI fluctuations, GDP fluctuations, opportunity for investors, employment

creation, favoring sectors.

Growth of the Foreign Direct Investment (FDI) started during the 1980s worldwide, which

sparked discussions about the costs and benefits of FDI. It is a common view that FDI can play a

key role in creation process of a better economic environment. But once the profits are

repatriated, it would adversely affect the Balance of Payments. How important they are, it is seen

by the priority given to it by many researchers. According to P. Masse, " The essence of

investments is made by tolerability of sacrifice and denial by consumption at present to increase

the usefulness, respectively consumption in the future." This motive makes the investor from a

farther country of the world aim to prove this sacrifice, but always choosing the safest country.

By Rugman&Hodgetts, (1995) "Foreign Direct Investment is the ownership and control of

foreign assets, which means full or partial ownership of a company in a foreign country. The

great increase of FDI in general is one of the clear globalization signs of the world economy

during the past 20 years. Investments contribute enough even as a percentage of Gross Domestic

151

152 Kida NakijeProduct (GDP). Firstly, FDI can provide new capital, allowing additional investment in human

and physical capital, which can be very useful for developing countries. In the long term, the

foreign investments are more likely to be available for the local - host economy, if the

investment takes the form of creating new productive enterprises or expand existing ones. From

the influx of new knowledge, domestic firms may benefit through imitation and learning

(Findlay 1978, Mansfield and Romeo 1980, Blomström 1986). The growing competition in local

markets and facilitation of human and capital mobility among the firms (Fosfuri et al. 2001,

Glass and Saggi 2002) has made the quality of products grow. According to Balasubramanyam

et al. (1996), FDI encourage the export promotion, or to Borenszstein who argues that host

economy should have educational capacity to incorporate technology effects. Through

investments in the tourism sector which is one of the strongest drivers of global trade, Kosovo

would have prosperity, too. Within the last decade, the GDP contributors in Kosovo have been

the service sector, construction sector, immovability and production to some extent. Poverty

alleviation is one of the biggest global challenges. The development of agriculture and tourism

will contribute more to the GDP of Kosovo. According to recent estimations by the World Bank,

tourism contributes 5 % of GDP in the world. It is responsible for 6 % of the world exports in

services being the fourth largest sector from export. Tourism in Kosovo in the future is likely to

become the second sector in terms of importance as it possesses multiplying effects in other

sectors. Even though Kosovo has no sea, it has such comparative advantages as the appropriate

climate, rich cultural heritage, inspiring landscapes and abundant biodiversity.While the

theoretical literature is currently investigating the effectiveness of FDI in sectors, our focus is to

investigate which sectors in Kosovo contribute in greater participation in GDP and GDP

fluctuations over the years. Two answers are important: if FDI generate growth in Kosovo, and

what sectors in Kosovo contribute through FDI to the economic growth.A comprehensive review

of literature in Kosovo let us understand that FDI volumes are increasing every year. Kosovo's

interest in foreign capital has caused creation of favoritism to foreign investors, but it is

important to facilitate the manufacturing sector, agriculture, renewable energy and food

technology. In absolute terms, FDI has increased in all sectors and in almost all industries. While

in manufacturing, it has increased for 4.5 times, in extractive industries for 5.5 times, while

investments in the services sector have increased for 8 times. The government has created legal

facilities and subsidies for the manufacturing sector, agriculture, renewable energy and tourism.

In contrast to these, Carkovic and Levine (2005) have observed the relationship between FDI and

economic growth, and have concluded that FDI do not affect positively on economic growth of

all countries, as the country specifics and investment liberalization policies are different as are

different the benefits of FDI. Bende et al. (2001) studied the impact of FDI on the economic

growth. They found that FDI directly or indirectly accelerate the economic growth. Negative

results were found in East Asia in studies of Agosin and Mayer (2000) and Stocker (2000). There

are studies which claim that internal investments contribute more in economic growth than FDI.

Graham and Krugman (1991) argue that domestic firms have good knowledge and access to

domestic markets. This is more possible if invested in developed countries, but in developing

countries is more likely for a foreign investor to be more successful than an internal investor.

Investors combine management skills, modern technology, lower cost of labor, increasing

efficiency and productivity more than their internal competitors.

FDI Flu tuations Followed by GDP Flu tuations in Kosovo... 153The Republic of Kosovo is one of the medium income countries compared with the region

countries. Kosovo declared independence in February 2008, as a giant leap forward for Kosovo

to be integrated into a global network of multinational corporations. With a solid economic

growth since the end of the war in 1999, it is considered as one of the four countries in Europe

that recorded positive growth rates, averaging 4.5 percent. But international limited integration

into the global economy has affected the flow of FDI to fall in the last three years. But the

success of remittances especially from Germany and Switzerland which go for consumption

purposes is being replaced with long-term capital investments. Kosovo continues to face high

rates of unemployment and poverty with a product per capita gross domestic product (GDP) of

about € 2,700 and about a third of the population lives below the poverty line - and as much as

that in extreme poverty. Unemployment in particular - estimated at about 40 percent - remains a

challenge. Kosovo has untapped potential of natural resources, as well as a cheap and educated

labor force, that is one of the prerequisites for a country to be attractive to a foreign investor.

There are power plants, the possibility of alternative energy production, factories for production

of vehicle parts, mineral plants, and textile factories, different factories of 50-year tradition in

production of semi-products which were finalized in other countries of the former Yugoslavia

and outside it. These assets1 are still waiting for foreign investiture. Kosovo is oasis for investors

therefore there only remains their awareness by Kosovo government agencies, which are in their

highest attempts, but as a country in transition, information is not always on time. Despite the

unfavorable developments in the region and beyond, Kosovo's economy in 2012 achieved a

positive growth rate. Real GDP growth is estimated to have reached 2.9 percent in 2012, which

represents the highest growth in the region, too. The main source of economic growth in the

country is considered to have been the consumption increase in both private and public sectors.

During 2012 there were profound fluctuations in some of the most important financing

sources of the country, particularly foreign direct investment. Despite the deterioration in some

sectors of the economy, particularly in the financial sector, the banking system has had positive

performance and is estimated to have supported overall economic activity. Essentially, Hermes

and Lesnik (2003), Durham (2004) and Alfaro et al. (2004) have noted that countries with good

financial systems and market regulator can exploit FDI efficiently and achieve a higher growth

rate. This enables entrepreneurs to take credit for starting a new business. These two conditions

in Kosovo are not favorable, so the interest rates need to be lower as they are over 13 %, but the

market regulator should function. Foreign investors in Kosovo in terms of political stability and

market liberalization are safe, because the law for investors and MIGA provides investment

insurance (guarantees) for diverse projects. Benefits from trade and openness to the world have

made Kosovo produce those goods that are beneficial. Kosovo, despite its specific

characteristics, has a temperate climate, soil, irrigation, sufficient manpower and tradition in

producing of e.g. some agricultural products for market such as vegetables, fruits, meat, veal, etc.

1There are over 38 factoriesonly in a small Kosovo town such as Gjakova, not considering the others that are all

over Kosovo region.

154 Kida NakijeDetermination of effective strategy and investment promotion based on international best

practices is a good guide for Kosovo to perform well:

- Application of incentives for investment in a transparent way;

- Strengthening the Investment Promotion Agency (IPAK), with sufficient human and

financial resources;

- Identification of administrative barriers to foreign direct investment and removing of

such investment obstacles;

- Encouragement and greater integration of foreign business in the economy and creation

of foreign investment through a connection between medium and large country

enterprises;

- Tax policy;

- Development and management of a comprehensive tax strategy, in accordance;

- Certain, transparent and predictable tax laws;

- Certain legal basis for all taxes, duties and tariffs;

- Implementation of a tax system that is equally applicable to foreign and domestic

investors;

- Elimination of double taxation;

- Implementation of VAT reimbursement mechanisms - fast and efficiently - for exporters;

- Cooperation between the Tax Administration and investors, policymakers and investment

promotion agencies;

- Legislation and best practices in the prevention and punishment of corruption, bribery;

- Implementation of measures which aim improving of transparency in law implementation

by public administration, particularly in customs, tax collection, government procurement

and administrative practices at the municipal level;

- Improving efficiency, competence and integrity of the judiciary;

- Establish and effectively implement competition legislation;

capital creates new job opportunities, bringing capital, new technology, skills and work culture,

creates opportunity for them to increase GDP, and this means that in the long-term, GDP growth

is investors’ attracting factor, because the purchasing power of the country increases. By

increasing the quality of life, increases the demand for goods and services produced or served by

multinational corporations. In Kosovo after privatization and liberalization of 1999, market

became open. This new development that happened to the country after dirty war brought an era

of better economic development which led to a constant growth of GDP. With the entry of

MNCs in various sectors, which were closed up to then, the country has become one of the most

stable economies in Europe. FDI brought large capital flows, which help to activate various

sectors. All these sectors are contributing more to GDP growth than country's domestic capital

which is mainly engaged in the road infrastructure. Now you can consider Kosovo economy

competitive with regional countries. But 2013 has marked a small decrease of the FDI flow as a

result of EU non-membership, because Kosovo lacks many agreements and benefits with

FDI Flu tuations Followed by GDP Flu tuations in Kosovo... 155international organizations which would be the catalyst in attracting of FDI. Internal positive

developments occurring in Kosovo are important, in particular:

- Public Private Partnership, infrastructure development, public investment,

- Development of the private sector, privatization, good foreign investment opportunity,

- Development of agribusiness, manufacturing food industry and export of many products

with origin from Kosovo,

- Development of Mining and Energy plants,

- Increasing the production capacities of wood and metal production and processing

industry, tourism, and building.

Too attractive are also the taxes and fees applied in Kosovo, which are the lowest in Europe.

But since January 1, 2009 tax rates for these types of taxes, which currently form the tax

system in Kosovo, have been decreased and increased:

- Corporate profit tax, 10%

- Income tax 0 -10 % (Progressive),

- ValueAddedTax (from 15% to the rate of 16% ),

- Personal IncomeTax (from 5,10,20 to the ratesof 4,8,10% ),

- CorporateIncomeTax (from 20% to the rate of 10%).

- Pension payment rate is 5% by employee and 5% by employer.

- Customs, 0% import tariff on raw materials and a range of capital and intermediary

goods

In addition the recent reforms led to expedite procedures of doing business that with zero

cost and only in two days the business can be registered. All administrative procedures and

waiting time for imports and exports fell by 50%. Municipality permissions to start a business

are eliminated, too. This has led it to rely on small and medium enterprises (SMEs). Entry of

foreign capital and networking chain of production and services has created opportunities for the

country local economies to benefit as SMEs will be as distributors.

Gross Domestic Product (GDP) in 2005 is estimated to have reached 3.9 billion euros value.

Ongoing to 2012 the average revolved to 3.5 %. The main carriers of economic growth in 2012

are considered the private and public consumption, whereas the investment impact was limited as

a result of lower foreign direct investment (FDI). This decline in FDI was counteracted by the

public investment increase, while the negative impact of trade in goods and services in real

economic growth eased due to improvement of this component compared with the previous

year.2 A negative relationship between fluctuation and growth was found in studies of Ramey

(1995) and later in those of Fatás (2002), Acemoglu et al (2003), Hnatkovska and Loayza (2004).

A positive correlation can be developed in developed countries where instability is associated

2 Source for GDP is Statistical Agency of Kosovo and the International Monetary Fund, World Economic Outlook,

October 2012.

156 Kida Nakijewith the appearance of recessions and these recessions lead to research and development of

higher firms or destruction of the less productive ones. Long-term growth can occur after a

revival of the economy (Schumpeter 1939, Shleifer, 1986, Hall, 1991; Caballero and Hammour,

1994 and Aghion and Saint - Paul, 1998a), which is not proven to happen in developing

countries because innovation in research development is low, financial markets are not well

developed, education expenditures are small. These countercyclical forces that must occur at the

time of a recession do not occur in these fragile economies, which are also argued (Hnatkovska

and Loayza, 2004). However, experience has shown that some countries have experienced higher

growth rates as a result of increased foreign investment, while in others it has not happened. The

relationships between GDP fluctuations and long-term growth can be positive, Aghion and Saint

- Paul (1998a) found that improvement of productivity in times of crisis affects the positive

economic growth3 (MoheyGhulam-ud-din and Muhammad Wasif Siddiqi (2013). However,

there is neither theoretical agreement nor empirical evidence that can reliably take into

consideration that the relationship is negative, positive or does not exist (Edwards and Yang,

2009. Edwards and Yang (2009) have highlighted three various channels suggesting a positive

correlation between fluctuation and GDP growth:

- Firstly, this positive correlation can be drawn through the consumption channel.

Uncertainty increase makes the save, which results in investment increase and economic

growth through higher production.

- Secondly, positive connections - instability and increase can flow through high

technology channels which are expected to result in production increase of the following

periods.

- Thirdly, another possible mechanism for a positive relationship is related to the concept

of creative destruction which would make possible enabling plants and outdated

technologies with modern technology through renovation.

This last form will increase productivity, but not for a longer term, as the sustainability time

of this technology is lower than of that when modern technology is applied. Such a technology is

usually present in developing countries which have neither created financial opportunities nor

enough knowledge to apply the modern technology, but they are initially taught through

destruction-creative technology, which technologies have also been brought in Kosovo.

Volatility or fluctuation in GDP is measured at least for five years through the growth rate of

GDP per capita. Data through which this variability is measured are:

- Initial Gross Domestic Product obtained from the Central Bank of Kosovo;

- Financial development, banking system moderately developed, while financial markets

do not function;

- Gross investments, which have almost uniform movements;

- Percentage of GDP, 3.9, 4.0, 5.0, 5.4, 3.8, 4.6, 5.0, 3.5;

- Size, Government is represented by the share of government spending on final

consumption;

3GhulamMohey-ud-din dheMuhamedWasif Siddiqi (2013).

FDI Flu tuations Followed by GDP Flu tuations in Kosovo... 157- The volume of trade (the sum of imports and exports) as a percentage of GDP, there is a

negative balance;

- Population growth rate is among the largest in Europe;

All these indicators in Kosovo clearly reflect that economic structure in Kosovo is partly

appropriate to have positive cyclical growth. The fact that Kosovo has a non-restrictive fiscal

policy, financial system moderately developed but with a fragile rule of law and a low public

debt has made possible the management of GDP fluctuations, bringing it in average from 3.5 to 4

% in the last 10 years. It is testified that Kosovo will neither suffer any recession nor expect a

greater economic development for the next 5 years. For other countries this has also been

claimed by Cabarello (2001) noting that the economic structure of a country determines

fluctuation of GDP.

Investment performance had the following trend in 2001, the value of investments was 661

million euro (gross), and a gradual decrease in investments was observed up to 2003, while in

2004 there was a slight increase to 594 million (gross). The year 2005 marked a significant

increase of 600 million euro (gross), while in 2006 the investment as a share of GDP increased to

28.3 %, which is one of the highest in the region, of 618 million euro (gross). Due to the global

downturn, FDI in Kosovo suffered a decrease. The year 2007 ended with 440.7 million euro

(net), a small decrease in 2008 to 366.5 million (net) and 2009 with 287.4 million (net). Kosovo

has had a positive trend of FDI in recent years. 2010 results in 365 million, with 3,523 foreign-

owned and mixed companies registered that have been able to invest. 2011 followed with 15 %

more FDI, or 10 % of total FDI in Southeast Europe (SEE), (CBK, 2012), with 393.9 million

euro (net). The year 2012 up to the third quarter brought 178.40 million FDI, which are

significantly lower than those in the third quarter of the prior year.

Table 1: FDI inflows: World ($ billion net) for the years 2005 to 2011, Southeast Europe

(SEE), R. of Albania, R. of Kosovo, 2005-2011 (euro million net) (The data of Kosovo are

attached by the author).

Expecting

economies

2005 2006 2007 2008 2009 2010 2011

World 782 673 1 164 682 1 534 682 1 208 931 802 041 936 640 1 085 242*

SEE 3 870 7 885 9 384 8 663 5 446 3 109 4 745*

Albania 213 259 481 663 717 793 742

R.

Kosovo

107.6 294.8 440.7 366.5 287.4 365.8 393.9

Global Foreign Investments have lost momentum in 2012, although the prospects for 2013

and 2014 are optimistic. Albania in 2010 ranked the second in the SEE countries with 793

million euro in terms of FDI inflows after Serbia. FDI in SEE transition economies recovered

strongly in 2011. Economic growth was the result of public investment, privatization, donor aid

and remittances.

158 Kida Nakije FDI in Kosovo – by countries (net), in millioneuro, years2007-Q2/2012, CBK, 2012.

Year Total AT DE SI GB CH TR NL AL LU RS other

2007 440.7 35.4 48.1 56.2 116.2 9.7 5.4 41.2 3.4 13.1 0 112.0

2008 366.5 51.3 44 44.3 36.6 31.1 23.8 22.5 21.9 6 5.5 78.5

2009 287.4 15.5 75.2 50.8 6.2 22.7 14.5 25.1 23.3 8.3 0.6 55.2

2010 365.8 21.1 91.5 34.0 38.9 35.1 4.9 14.5 20.3 0.4 0.4 104.7

2011 393.9 19.6 66.6 16.2 80.1 30.9 34.7 14.2 11.2 0.5 0.4 117.8

total 1854.3 142.9 325.4 201.5 278 129.5 83.3 117.5 80.1 28.3 6.9 468.2

States with the largest inflows in Kosovo are: Austria, Germany, Slovenia, Great Britain,

Switzerland, Turkey, Norway, Albania, Luxembourg, while RS of Serbia has no significant

participation. Germany, Great Britain, Turkey and Slovenia are the dominant countries.

The most important sectors that have allocated investments are: food processing industry,

energy and mining, woodworking, metal, textile, information technology, tourism and

construction sectors.

Distribution of foreign investment companies by economic sectors in 2010.4

No Sector No. of companies % in total

1. Trade 1674 40%

2. Production 624 15%

3. Construction 502 12%

4. Tourism and Hotels 310 7%

5. Transport 158 4%

6. Banking sector 125 3%

7. Telecommunication 98 2%

8. Health services 49 1%

9. Education 33 0.8%

10. Various services 637 15.2%

TOTAL 4210

Source: StatisticalAgencyofKosovo, MinistryofIndustryandTrade, 2011.

The number of companies operating in Kosovo shows that the trade sector dominates

followed by the service, manufacturing and construction sector, which is an indication that the

balance of payments will be negative because of consistent domination of compelling enterprises

with large goods and equipment while export is insignificant. This means that the internal sector

in Kosovo is fragile, so it facilitates the investors to be competitive.

Economic growth of Kosovo has been stable and generally in terms with the rates of the

neighboring countries above (Figure 1).5 Average growth rate of 3.5 percent during 2009-12, is

largely attributable to the public investments in rebuilding of the country, donors and

remittances. Kosovo has had a positive economic performance for a decade because the market

4Ministry of Foreign Affairs, Economy and Investment in Kosovo, the official website, mfa-ks.net.

5World Bank In Kosovo, Country Snapshot, October 2013. Pp.5.

FDI Flu tuations Followed by GDP Flu tuations in Kosovo... 159has access to over 520 million consumers, liberal trade regime, CEFTA integration, a stable

exchange rate with the euro currency, cheaper and educated workforce, as well as the favorable

tax system with taxes among the lowest in Europe. Despite the current model of Kosovo, growth

is unsustainable in the long term. Increased private sector activity and investment, as well as

exports will become more critical if there is not an open door for Kosovo to integration in the

European Union.

- Kosovo in comparison with countries in the region is solid, it can be

seen from the figure below where real GDP is more positive compared to Albania, Macedonia,

Montenegro, Bosnia and Herzegovina and Serbia.

Real GDP Growth Rates, 2009–12.

: Country authorities; IMF; World Bank staff estimates

- however, exports have not reached the required level for the

transformation of economy. FDI similar to the situation in neighboring countries have not

reached a level to finance the current account deficit (Figure 2).6 Kosovo has managed to

maintain healthy public finances and protect fiscal space for public investments. Since mid-2011,

Kosovo has successfully managed to limit its fiscal deficit to 1.9 and 2.7 percent of GDP in 2011

and 2012.

6World Bank in Kosovo, Country Snapshot, October 2013.pp.3-5.

160 Kida Nakije

Fiscal Performance, 2009–12.

: Ministry of Finance; IMF and World Bank staff estimates.

Unreliable supply with electricity for businesses is a major obstacle

to investment and business expansion. The demand for energy is rapidly increasing in Kosovo

during the last decade (Figure 3). Energy consumption grew 90 percent during 2000-10, despite

frequent reductions. Electricity production in Kosovo is made from two old and inefficient power

plants that have caused major environmental pollution. Kosovo has enough sources of energy

production that will meet the needs of the region but also the outdated production capacities have

made not to meet the production needs of Kosovo either.

Simulated Energy Mix 2010-25.

: World Bank (2012), “Development and Evaluation of Power Supply Options in

Kosovo.”Also published in World Bank in Kosovo, Country Snapshot, October 2013.pp. 8.

Kosovo is very rich in mineral deposits, although their potential has remained largely

untapped. In addition to 10.9 billion tons of coal that can be easily explored, the country has

FDI Flu tuations Followed by GDP Flu tuations in Kosovo... 161abundant deposits of ferronickel, lead, zinc, magnetite, and other minerals that will increase

exports of Kosovo.7

Foreign direct investments, by volume are sensitive depending on stages of economic cycles but

also on business cycles. This has been confirmed even today when the economic recession is

occurring. World FDI rose steadily since 1990, 2003 to 2008, when as a result of the crisis, and

later of the economic recession has had a slight decrease. The crisis affected more the developed

countries in 2009, and then slipped to developing countries depending on how much they were in

trade and financial agreements with each other. The crisis reduces new FDI inflows to

developing countries, but not to the extent of jeopardizing ongoing investments that have started

to generate income. Figure 5 found that most of FDI since 2003 have been taken by developing

countries, but transition countries are becoming attractive especially after 2007. But in terms of

attracting FDI by the developed countries from 1993 to 1997, they were low, reaching the

highest point in 1999 with the continuous decrease until 2005, and in 2007 they have again

reached the 1999 level.

FDI inflows by group of economics, 1993-2011, million US dollars8.

Inflows of global foreign direct investments increased to 16 percent in 2011, surpassing pre-

crisis level from 2005 to 2007 for the first time. Towards the developed countries they increased

by 21 percent. There are five host economies that are attracting the most FDI worldwide in 2011:

USA, China, Belgium, Hong Kong, Brazil.And home economies, big investors include the U.S.,

Japan, UK, France and Hong Kong.

7 World Bank in Kosovo, Snapshot, October 2013

8Kuchar íková, A. (2013). Foreign Direct Investment in the Context of the Economic Recession in

Slovakia. , (1), pp. 3

162 Kida NakijeTable 3. Top 5 host and home economies, 2011.9

Strategy is a matter of human resources but it is also an opportunity to change the negative

aspects of these resources. Correlation between strategy, determination to change and the

performance of FDI in Kosovo is seen as positive.

- Foreign Companies in various sectors in Kosovo should pay attention to physical

resources (raw materials, machinery, electricity supply and assets - equity), choice of

strategy in order to achieve the objectives of their income on performance average of

local companies.

- Different companies that come to Kosovo should bring new ideas different from those

who up to now have been applied in Kosovo, especially in the energy sector,

manufacturing, telecommunications, construction, textile, agriculture, post-

telecommunication, tourism, etc. because these sectors will be revenue generators in the

longer term.

- Government needs to take care especially in improving the power sector and environment

because studies have shown that insufficient supply of electricity hinders execution of

works in all sectors of Kosovo industry.

Therefore alternative energy production is necessary, as Kosovo suffers from environmental

pollution caused by the production of energy from the old plants; meanwhile it also has sufficient

resources to produce alternative energy.

Kosovo air pollution has passed beyond the European standards so by 2017 about 50 % of

the energy produced by power plants should definitely be replaced by clean energy. It is

important that Kosovo opens options to the less visited areas, give them chance to be involved in

the tourism industry, especially women.

9Kuchar íková, A. (2013). Foreign Direct Investment in the Context of the Economic Recession in

Slovakia. , (1), pp. 2.

FDI Flu tuations Followed by GDP Flu tuations in Kosovo... 163Creating financial policies to provide soft loans to start family enterprises in groups of 4 to 6

families to set up manufactories, hotel enterprises, greenhouses for vegetables and flowers etc.

This would affect employment and would have a multiple effect on other sectors besides

tourism. FDI will help greatly if they are channeled primarily to tourism and creation of new

enterprises. To achieve this, fiscal incentives are necessary, such as lower taxes, tax exempts for

a year, preferential tariffs, special economic zones, export zones, lower loan rates, exploitation of

fallow lands for purposes of tourism, infrastructure subsidies. Kosovo Government should

formulate a proactive strategy for FDI attraction which:

- Provide a suitable environment for greenfield investments;

- Transparency and accountability of public institutions to be effective;

- Reduce the time and cost for a new business work to start work;

- Continue the removal of all tariff barriers at the border;

- Establish cooperation agreements with countries that are stable and influential in global

politics;

- Use different forms of strategies to sensitize world opinion about the positive image of

Kosovo;

Government keen to promote FDI in Kosovo has simplified and streamlined policies and

procedures dealing with attracting investments. Since the beginning of the first FDI entries in

Kosovo, exciting opportunities for businesses have taken place in virtually every sector. Based

on FDI data in Kosovo, they have grown from year to year, but the Euro zone crisis in 2012

hindered the significant growth. This performance has also been shown with investments at the

global level. The largest investments have been attracted by the sector of services like telecom,

transport, banking, construction, real estate and recently the manufacturing sector. Due to

geographical reasons, Kosovo’s main investors are neighbors and EU countries. But Kosovo is

not considered a favorite for foreign investors yet, despite numerous offers. Low labor costs and

many natural resources, privatization of strategic sectors are advantages, while small market,

corruption, bureaucracy and disintegration of the European Union (EU), are the disadvantages of

the Republic of Kosovo. Host country policies of Kosovo towards attracting FDI and benefits

from the presence of corporations should be equivalent to policies to mobilize domestic

resources for productive investment. They include improving the overall macroeconomic and

institutional framework, creating a regulatory environment that is transparent and non -

discriminatory. Business sector is part of the solution and has potential to be a powerful partner

in a strategy to increase investment and sustainable development. FDI is welcome in almost

every sector. There are environmental concerns on developments in energy and cement. Kosovo

has an environmental rapidly deteriorated performance especially deforestation, air pollution,

land etc. Correlation amongst FDI - GDP is positive, while FDI - environment correlation is

negative.

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