On February 1, 2021, Israel and Kosovo establish diplomatic relations. Centered in the Balkans, Kosovo borders Serbia, North Macedonia, Albania, and Montenegr with an area of 10,887 km2 (4,203 sq mi).
Kosovo has the youngest population in Europe, where nearly half of its 1.8 million people are under the age of 25.
The World Bank’s Doing Business project ranked Kosovo as the 57th best country to do business out of 190 economies.
It has a Gross National Income (GNI) Per Capita of (US$) 4,230.
The International Monetary Fund 2021 Projected Real GDP (% Change) is 6.0, with a Projected Consumer Prices (% Change) of 1.2.
I turned to Dr. Efraim Chalamish to better understand the opportunities and challenges of doing business with Kosovo. Dr. Efraim Chalamish is a senior advisor at Duff & Phelps and leads the firm’s Israel practice. He is also a Fellow in the Duff & Phelps Institute, providing thought leadership on a variety of economic and regulatory matters.
Dr. Chalamish specializes in international economic-legal issues, including sovereign finance, energy markets, trade and investment policies and strategies, and international disputes. He also teaches at New York University School of Law, and IESE Business School.
How will Israel and Kosovo benefit economically from diplomatic relations?
As the vast majority of exports include metals and minerals, it can help diversify Israel’s import base in those areas as shipping costs are lower than in/from further markets.
On the other hand, as a small growing economy, Kosovo can benefit from many Israeli products and technologies on the higher end of the value chain (such as medical devices).
Over time, Israeli companies can look into using Kosovo as a more affordable base for distribution and sales operations for the Balkans region.
This sounds very promising for both Israeli and Kosovo. Why do you think Kosovo will be a more affordable base for distribution and sales in the Balkans? What makes Kosovo an attractive destination?
Kosovo ranks relatively high among Eastern European/Balkan countries on World Bank’s Doing Business ranking, which means Israeli companies can take advantage of lower costs while keeping a good quality of governance.
Indeed, it has been a concern for global companies in the region for many years, and Kosovo can still improve significantly, yet Kosovo’s transition to market-based policies and independence has been recent.
In the World Bank’s Doing Business project, Kosovo scored very high (12) for ease of starting a business, getting credit (15), and trading across borders (31). Yet, it also scored especially weak in dealing with construction permits (160), protecting minority investors (128), and getting electricity (90). Will these weak points remain bottlenecks for growth? Will they be fixed by local governments?
Minority protection is part of a broader governance challenge in the region.
This is one of the reasons many foreign investors pursue joint ventures with local players.
Multilateral institutions have been promoting transparency and better governance in the Balkans for many years, and Israeli investors may face better conditions in the coming years.
Local infrastructure, including in the utilities sector, tends to be aging, while there is a significant gap between the growing needs and existing solutions.
In the case of electricity, might they provide business opportunities for renewable energy?
Israeli energy investors and developers, especially in the renewable space, have been very active in Europe recently. Italy, Spain, and the UK are some of the target markets. Yet, since inconsistent policies and governmental intervention have triggered many investor-state disputes in recent years in the energy sector, including in Eastern Europe, Israeli companies will probably be more cautious before entering this regulated sector in the Kosovar market. Partnering with economic development agencies could be a middle ground for many of them.