Kosovo signs on the dotted line – now what?

Kosovo signs on the dotted line – now what?

Kosovo gets closer to EU integration by signing the landmark Stabilisation and Association Agreement, but what does that mean for regional relations and the overall health of the Kosovan economy?

The much anticipated signing of the European Commission’s Stabilisation and Association Agreement (SAA) on October 27th 2015 marked an important day not only for Kosovo’s ambitions to join the EU, but also for its regional partners and adversaries alike.

Kosovo’s Minister of European Integration, Bekim Collaku, remarked in a press release that this signing “is a historic moment for Kosovo because for the first time it sets out contractual relations with the EU”. He is correct, but what does this actually mean for the welfare of Kosovo?

The SAA in practice

SAA’s are part of both the EU Stabilisation and Association Process (SAP) and European Neighbourhood Policy (ENP), and serve as a stepping-stone for any country wishing to join the EU. Kosovo was the only country in the region that was yet to sign the SAA. It has been looking forward to this moment ever since talks began in 2000, and for good reason.

This agreement not only serves as a symbol of growing integration and cooperation between the two political entities, but will substantively improve the condition of the Kosovan economy by giving Pristina more access to its European trading partners and integrating it further into the single market.

In fact, Article 98 states that the SAA ‘shall focus on protection of foreign direct investment and shall aim to bring about a favourable climate for private investment, both domestic and foreign, which is essential to the economic and industrial revitalisation of Kosovo.’

As we can see, initiatives like these not only oil the wheels of progress for a country, but also serve as a benchmark that greatly increases investor confidence, which in turn will boost Foreign Direct Investment and competitiveness.

Indeed, Kosovo has a lot of potential to grow. According to the World Bank Kosovo has the highest youth population in Europe with more the 70% of its population under the age of 35. With the majority of them speaking both English and German, this makes it a very attractive place for business growth in the field of IT and communications, technology, entrepreneurship, business, and manufacturing.

Crunching the Numbers

Kosovo’s agreement with EU markets has contributed a total of 29.9% of exports to flow into EU member states in August 2015 – an increase of 11.8% from the same time last year, this is a marked improvement. However, Kosovo suffers from a growing trade deficit that it needs to close if it is to prosper.

Kosovo’s trade deficit is averaged at -139,809.09 thousand EUR from 2003 until 2015. Its three main export groups are base metals (40.5%), prepared foodstuffs, beverages and tobacco (17.6%), and mineral products (16.1%).

But as a result of signing the SAA, Kosovo will be able to purchase raw material at more affordable prices, which will incentivise further economic and political reforms in the country.

Being as it is still a young and emerging economy, it tends to do its biggest business with its neighbours. Its three biggest trade export partners outside of the EU are Serbia (13.3%), Albania (12.4%), and Macedonia (9.2%) – which when combined equal 34.9% of combined trade activity.

Diversification and strengthening of trade relations is essential to Kosovo’s improved balance sheet. Despite its shortfalls, these figures are set to improve as a direct result from signing the SAA. But by how much we cannot predict.

Expected opposition

The signing of the SAA comes as a direct result not only from the fulfilment of specific economic and political criteria, but also from improved relations with Serbia. 2013 marked the latest EU-brokered accord between the two nations, with both sides (among other things) agreeing to not block each other’s efforts in seeking EU membership.

Although this move comes as an unwelcomed development for Belgrade, it is by no means a surprise. Serbian Prime Minister Aleksandar Vučić may hold private discontent at this new development between Kosovo and the EU, but we cannot expect to see much direct resistance from the Serbian establishment – it too needs to show a progressive side to further its own EU ambitions.

In fact, the chosen date for signing the SAA with Kosovo is likely a strategic move on the side of the EU, as it is hosting the Belgrade accession negotiations at the same time. This will keep Vučić and his team busy building a case for why Serbia merits joining the EU family, instead of openly disputing the SAA in Kosovo.

In fact, perhaps the most notable sign of resistance has come from Spain, who (like other EU member countries including Cyprus, Romania, Greece, and Slovakia) does not recognise Kosovan independence (yet). This is one of the main reasons why the Kosovan SAA will be signed bilaterally between the EU and Kosovo.

It may be worth noting that the integration of Kosovo into EU markets will lead to the strengthening of economic ties between its-self and certain non-recognising countries which might lead to positive political spill over effects in their attitude to the ‘Kosovo question’.

In all, the SAA will bring significant long-term benefits to Kosovo’s economy and its investors. With its attractive demographics, continually reforming business policies, and improving relations with its northern neighbours, Kosovo is eager to shed its troubled past and move forward as an invigorated new and expanding economy.

Categories: Economics, Europe

About Author

Klisman Murati

Klisman Murati is the former President of the International Public Policy Review and has a focus on regional issues in the Balkans, Sino-US-Russia relations, MENA, Sub-Saharan Africa. And subject specific topics such as: corruption, political economy of global energy policy, nuclear weapons, NATO, terrorism & strategy and outer space warfare and policy. Murati holds an MSc in Security Studies from the University College London and an alumni of the Transparency International anti-corruption studies program.