Issue 20

AmCham Kosovo

Biannual magazine published by the American Chamber of Commerce in Kosovo Issue 20 / November 2013

tH the Business Horizon

Private Sector the main engine

of economic growth

Hashim Thaci . pg. 10

FACILITATING BUSINESS IN KOSOVO Maureen A. Shauket

pg. 22

Internet of Everything .

Dejan Stojanovic pg. 24

www.amchamhorizon.com

Contents

the Business Horizon

7 8 10 12 14 16 18 22 24 26 28 30 32 33 34 36

Financial Advisory Services in Kosovo Bersant Disha

Building the Green Corridor Bechtel Enka

Private Sector the main engine of Economy Growth Hashim Thaqi

Information is Power Ilir Ibrahimi

Finding the “Right” People Lakeisha Allen

Importance of business expansion in the region Ramiz Kelmendi

The Economy, The Agreement, Europe Vlora Çitaku

Facilitating Business in Kosovo Maureen A. Shauket

Internet of Everything Dejan Stojanović

Toward Sustained Rates of Dynamic Growth Jan Peter Olters

IT Outsourcing and/or Cloud Computing Valon Budima

The Importance of Professional Training in Capacity Visar Jasiqi

Impact of Kosovo-Serbia Agreement Naim Huruglica

PWC investment plans

PricewaterhouseCoopers

Entrepreneur and Entrepreneurship- Forgotten steps Valon Bytyçi

Policy and Legislative Highlights

Published by: American Chamber of Commerce in Kosovo / Str. Perandori Justinian No.16 / Tel: +381 (0) 38 609 012 / www.amchamksv.org / info@amchamksv.org

Board of Governors

Untitled Governors

AmCham Kosovo Executive Office

President Erolld Belegu, Marigona Residence

Editor in Chief: Arian Zeka Executive Editor: Rina Abazi

Vice President Jerry Rexha, CTA LLC

Disclaimer: The content of this publication does not necessarily present the opinions and positions of the American Chamber of Commerce in Kosovo. Theme photographs presented in this magazine are not property of AmCham Kosovo.

Secretary General Dastid Pallaska, Pallaska & Associates

Afërdita Saraçini Kelmendi, RTV 21 Maury Wray Bridges, Booz Allen Hamilton Vesa Mullaademi, Llamkos Chris Jennions, Bechtel Enka Islam Pacolli, Mabetex Project Engineering Dejan Stojanovic, CISCO

Arian Zeka, Executive Director Visar Hapçiu, Policy and Government Relations Atlantida Hasani, Membership Services Officer Rina Abazi, Communications Officer Anita Ahmeti, Protocol and Events Officer Valon Bytyçi, Finance Officer Visar Ramaj, Secretary General of ADR Center Nida Krasniqi, Policy Assistant

Treasurer Agon Gashi, Meridian Corporation

Ex-Officio Cavan Fabris, US Embassy

the Business Horizon

3

AmCham members Corporate Members • AGANI Ltd. • Alcatel Lucent • Ask Foods • Banka Ekonomike • Banka për Biznes • Birra Peja • Dardania • Devolli Group • Hotel Sirius • IPKO Telecommunication L.L.C. • Jens Automotive Haus • Kosova Petrol • Llamkos GalvaSteel• Microsoft • Philip Morris Albania Sh.p.k. • PricewaterhouseCoopers • ProCredit Bank • Raiffeisen Bank • Smart World TV L.L.C • Sole Kosova • Trepharm • Actavis International • Medium Members • 3CIS J.S.C • ACDC-KOS L.L.C • Adea Group • American School of Kosova • ARFA • ASGETO Asseco • Booz Allen Hamilton Inc, Kosovo Branch • Buçaj L.L.C • Checchi and Company Consulting • Cisco Systems Macedonia dooel Skopje • Delfin LTD • Deloitte • Elkos Group • ELTING • HIB Petrol • Gorenje Niki Tiki • Grant Thornton • Head Hunters Kosovo Branch • Holland Tech • Nartel • Hotel Prishtina • Hotel Victory • Ilir Kosova • Kolegji Universitar Victory • KPMG • M & Sillosi • Marigona Residence • MDA • Mercom Company • Patroni • Pestova • RIMA Eng. • Rrota • Scampa • SIGAL UNIQA Group Austria • Universal Food • Vi-Print • Vila Gërmia • Viva Fresh sh.p.k. • RailTrans • Fortesa • AS Travel • Art-Com • DM Consulting • Small Members • ADAS Counsel Kosovo LLC • ARS Travel • Arta-VM L.L.C • Asha L.L.C • AVC • Baker Tilly Kosovo • Banja e Kllokotit • BOGA&ASSOCIATES • Butterfly Consulting LLC • CEED Kosovo • CONIN • Crimson Finance Fund LLC • EcoTrade • English Centre • Exclusive Group • Fundway L.L.C • Haxhijaha • INFORMATIKA Computers L.L.C • Interlex Associates L.L.C. • Intermarket • IRON Consulting • Kalo & Associates LLC • Kosova Motors • Kreatoda • KWE • Omi Impex • Link Software • Marketing Mix • Melita and Partners • Metal Group • Metton Reklama • NPG/New Promotion Group • Pallaska&Associates L.L.C • PharmaSwiss SA, Sh.p.k • PR Solutions • Proton Cable L.L.C • Recura Financials • Red Consulting LLC • SCLR Partners • Sport In • Stone Castle Vineyards and Wines L.L.C • Technology Transfer Associates EOOD • Triangle Branch Kosova • Trokit • UniProject • Universiteti Iliria • Universum College • USAID Business Enabling Environment Program in Kosovo • VEV Group • VIP Travel • Vitaminka • Xhad Studios • New Europe Corporate Advisory • Aero-Com • NGOs • American University in Kosovo • Centar Za Mir Ekonomski i Ruralni Razvoj-Cmer • Kosovo American Education Fund • Society of Certified Accountants and Auditors • Individual Members • Betim Osmani • Faton Kaqanolli • Linda Shala • Mimoza Kusari-Lila • Rinor Hajdini •

Patron members

4

AmCham Kosovo

Financial Advisory Services in Kosovo Bersant Disha Executive Director, RECURA Financials

K

osovo is a small, nascent economy with a stable macroeconomic performance over the past decade, with annual GDP growth rates fluctuating between 3.9 % and 5.4%. Although initially the main growth factors were international aid and remittances, these are now being replaced by a growth in the private sector and increase in investments. Kosovo still runs a high current account deficit and records high unemployment, which although a problem in terms of macroeconomic stability also presents an opportunity for growth through import substitution, inexpensive workforce and geographical position.

These circumstances together with an ever improving regulatory environment and doing business climate have created circumstances for private sector growth, resulting in more and more Kosovan companies facing high growth opportunities both within Kosovo as well as looking outward in the region.

In addressing growth challenges, the needs of businesses for adequate professional advisory support have become increasingly more apparent, resulting amongst others in a growing demand for business, management, technical, technological, as well as financial advisory services. In particular, in addressing issues related to access to finance, one of the key challenges for businesses is improving their internal financial management practices. One of the key factors behind the high cost of capital, besides the perceived country risk, is the risk related to the level of informality in the economy and the unreliable nature of financial reporting in the private sector. Realizing this, many growing businesses have introduced improved financial management systems either in-house or through a combination of internal capacity development with the engagement of external financial advisory services. Over the last decade, this has given rise to a financial advisory services sector that is growing in depth and specialization.

Currently, the financial advisory services sector in Kosovo operates in four key pillars, with several service providers specializing in more than one area. The first to develop were advisory companies providing bookkeeping and accounting services. With standardization and transparency requirements increasing over the years, the sector has later grown to include financial auditing services. The accounting and auditing functions of financial advisory have had the longest presence in the market, with a large number of international and national companies, as well as individual advisors operating in the market. The recent drive in standardization requirements in terms of financial reporting, especially for the larger companies and corporations, will further help consolidate the market in terms of structured all round service providers.

Tax advisory is another area of external expertise that Kosovo businesses have started taking into consideration. As the level of formal economy is growing, foreign direct investments increasing, business activity moving from simple trading to more value added activities, and as Kosovo companies are expanding outside Kosovo, tax implications have also become a matter of

interest, thus driving the development of tax advisory services.

As in many other economies, this pillar of financial advisory is often combined between financial and legal advisors, and as a cluster it is expected to grow in importance.

Finally, with the growth of the private sector and with the development of more complicated corporate structures, the level of sophistication in financial management has grown. This has presented businesses with an ever growing need for professional financial advisory services in the area of corporate finance. This is related to the needs addressing issues from simple cash flow management, to financial structuring, combining financial instruments, investment management, as well as merger and acquisition processes. Senior management in many businesses is now understanding and expressing the need to make optimal well informed decisions and is often turning to external advisors. This has enabled the establishment and growth of both domestic corporate finance advisory service providers, as well as a growth trend in corporate finance departments of the large international financial consultancies active in Kosovo.

With the quick growth in demand, keeping in mind the relative lack of experience, the financial advisory services sector faces a number of challenges. First and foremost, there is a very limited number of qualified staff that businesses in the sector can employ as they grow, thus increasing the staffing costs.

Many times, companies are forced to develop their in-house professional staff at a very high cost. This subsequently increases the cost of providing the services, making them less attractive for small and medium clients, which make the vast majority of businesses in Kosovo. Further, the level of informality in the economy, coupled with weak internal accounting and financial reporting practices in the private sector requires much more effort in the part of advisors to be able to provide high quality advisory services. The nature of business ownership in most private companies and the lack of culture of engaging external consultants creates additional difficulties in client acquisition as well as in gaining the confidence of clients and access to information, which is key to providing appropriate advisory services. Finally, as the financial advisory sector is still in its early stages of development, standardization and quality assurance systems are still to be developed and implemented, thus ensuring sustainability and growth of the sector.

Nevertheless, there is a growing demand for external financial advisory services. Many businesses have seen the benefits in terms of improved financial planning and management as well as in terms of the decision making processes, thus expressing readiness to procure advisory services. Improved financial management will subsequently have an effect in improving access to finance and decreasing the cost of capital for Kosovo companies, thus enabling them to utilize the growth opportunities ahead.

the Business Horizon

7

Building the A motorway with

8

AmCham Kosovo

Green Corridor the colors of earth

T

hese are the last months for the completion of Kosovo Motorway Project. The countdown has started! KMP has a deadline in December 2013.

“Ibrahim Rugova” Kosovo Motorway is almost ready to be completely delivered from Section 1 to Section 9 in northern Kosovo. These months are crucial for the project. All the departments are on site. Over 2,500 employees with their orange uniforms are working as a single, stretched body in the last three Sections, carrying out works from earthworks to surveying to bridges and junctions. The pavement works have started in Section 9 and this indicated the coming of a successful completion.

The project started only three years ago, with a multicolor blasting symbolizing the connection of two borders, of Kosovo and Albania. “Soon after and in a record time, we managed to deliver the first 39 kilometers” said Chris Jennions, Kosovo Motorway Project Manager. In a flash, while the inaugural tape of these kilometers connecting the border to Suhareke and avoiding the heavy traffic in the heart of the city was being cut, people saw the equipment continuing their march to the north and in just 7 months another crucial location was connected to the motorway. Qafa e Dules was no longer a nightmare for transportation companies and summer travelers alike. The open motorway was expanding and with it, easier access across the country and to the sea.

The equipment sped further toward Malisheva and a day before the 100th Anniversary of the Independence of Albania another 18 kilometers of the motorway connected the M9, Peja Road to the motorway was opened to public traffic. Thus connecting Prishtina and its Industrial Zone directly to Durres city in Albania.

But, is the safe and faster traffic flow the only benefit?

The statistics show that the exchange of goods has increased and this corridor has become a connecting road not only for Kosovo, but for the North of Macedonia also. For several years the entire region suffered from the lack of first class infrastructure and roads of international standards. Only in recent years have countries of the region invested in such infrastructure; first Croatia and then Albania and now Kosovo.

Is this then the main benefit? There are pro and con arguments. There is controversial data, but there is only one irrefutable truth; Kosovo is a depot, not just in the region but internationally, of BIO products and mineral wealth. No large investment in these two significant sectors can open the doors to foreign investments without a good infrastructure for the movement of goods and equipments. Bechtel-Enka

and its staff continue to work 24 hours a day 7 days a week, overcoming all challenge onsite and collaboratinge daily with the teams of the Ministry of Infrastructure Ministry of Finance and the Ministry of Environment as well as other entities that are directly related to the relocation of utilities such as power and water supply.

The Project Manager, Chris Jennions is optimistic of another success story for the team he leads.

“The project has achieved extraordinary successes, one after another, in these past three years. We have won international acknowledged by the most prestigious engineering institutions in the world. The completion of the three final Sections within this year is yet another success story repeated on Kosovo Motorway Project. We all have a single commitment, to complete the motorway safely within the requested deadline, which in this case is one year before the deadline established in the Contract; because this is the date the public expects the completion of the project. Our highest and uncompromised commitment is the maximum safety of life, because we believe in the philosophy of Zero Accidents and the maximum quality.”

And, while the works continue thousands of workers and vehicles move around Prishtina, hundreds of local companies are now part of this large and challenging project for the Government of Kosovo. The project has launched another campaign at the service of the community.

According to Mr. Jennions “Building the Green Corridor " is the motto of this year, which is also the year of the earth. “It is now a tradition for Bechtel-Enka to engage every summer season in community service with various projects. This year is dedicated to the environment. We have started with the awareness with our staff, to plant flowers and trees in our site or at their homes. We have started and headed toward the successful completion of the project to transform KEK ash deposit in Obiliq in a green hill. Another awareness campaign is related to keeping the motorway clean, while in fall we plan to plant trees in Prishtina Junction and the city itself,” said Mr. Jennions adding that “We are engineers, we are people of construction sites, we love heavy machinery and we build roads and infrastructure, but everything we do is and will be to serve the people which is best done without compromising the environment, but instead investing in it.”

the Business Horizon

9

Private Sector The main Engine of Economy Hashim Thaรงi Prime Minister of Republic of Kosovo

S

ince the Declaration of Independence, the Government of the Republic of Kosova along the successful state-building process has managed to record strong and sustainable economic growth and development while maintaining its macroeconomic stability and sustainability, despite the economic slowdown in Europe. This economic progress is primarily a result of adequate policies of the Government of the Republic of Kosova which considers the private sector as the main engine of economic growth.

The government remains committed to continue its efforts in improving the business environment in order to empower the private sector and enable it to become the engine of economic growth and development.

For years, the business community has reported that fiscal policy, road infrastructure and energy supply are the three major barriers in doing business. This information has served as the basis for designing policies to improve the business environment. In this regard the government has successfully implemented several activities. As of 2009, the government has amended the fiscal policy in favor of the business community, among others, halving the profit tax rates.

Recently, a new fiscal policy package has been approved aiming at further reducing the fiscal burden on the businesses.

The government has implemented several policies and approved regulations to reduce the administrative burden as well. It has improved the efficiency of the Tax Administration of Kosova by digitalizing the majority of the services offered to the businesses. Recently, by approving the Reform on Doing Business the

10

government has intensified its efforts in creating an even more stable and secure business environment.

Through this Reform the Government of the Republic of Kosova aims at strengthening the free market economy, legal infrastructure, and providing the business community with incentives to shift from informal to formal economic activities. The progress in improving the business environment has been proven by the World Bank Doing Business Report which shows that the Republic of Kosovo has recorded a significant improvement in the ranking compared with other countries.

The government has been putting tremendous efforts into improving the road infrastructure. In addition to investments in interurban roads, the highway connecting the Republic of Kosova with Albania has been finalized almost and is soon to be completed, while the highway to FYR of Macedonia is just about to start with its construction.

Investments in the education system are also part of the economic vision. These investments are channeled into physical infrastructure as well as into the quality of the curricula, including both formal and professional education. The latter aims at improving the alignment between the curricula and the labor market demand for skills. Through this labor costs will be reduced.

The government has approved the strategy on the energy sector which enables private sector involvement. Very soon, the energy sector will experience tremendous investments, whereas the businesses will benefit from secure and uninterrupted power supply.

AmCham Kosovo

The Republic of Kosovo is a member of the World Bank, the European Bank for Reconstruction and Development and the International Monetary Fund.

All three organizations have supported the government in improving the institutional framework, among others, relating to private sector development. With the IMF the government has entered into the Stand-by Agreement that foresees support to the government in, among others, maintaining macroeconomic stability and strengthening the competitiveness of the private sector.

Recently, the opening of negotiations on a Stabilization and Association Agreement between the European Union and the Republic of Kosovo has created a new milestone for the country. This paves the way for the integration of the Republic of Kosova into the European Union. In addition to its political components, this agreement covers also issues relating to economic development and trade.

Therefore, the successful implementation of this agreement will be reflected also in an improvement in the quality and security of the business environment.

As a result of the establishment of autonomous trade measures, businesses operating in the Republic of Kosovo are granted duty free access to the EU market and the US market. Furthermore, businesses benefit from the free trade agreement CEFTA and the bilateral agreements that provide relief of double taxation.

Including the above, there are several other factors that make the Republic of Kosova a very attractive place for investments:

Young and enthusiastic labor force which is eager to acquire new skills and knowledge; this has been validated by the continuously increasing number of those that continue with Higher Education both in Kosova and abroad; Favorable fiscal policies; Autonomous Trade Measures with the European Union and the United States; Participation in Free Trade Agreements (CEFTA); Membership in international organizations; Natural resources, especially in the energy and mineral sectors; The privatization process of the publicly owned enterprises and of the state-owned enterprises, or business units of the latter; High market demand and the continuously increasing market demand; Easy access to regional and EU markets given the geographical location and new investments in road infrastructure in the Republic of Kosova;

There are several examples of successful Foreign Investments in the Republic of Kosova. Existing foreign investors are focusing on extending their business activities in the Republic of Kosova. The major reasons for doing so are considered to be the high and continuously increasing market demand and the geographical location.

I use this opportunity to cordially invite you to visit the Republic of Kosova and meet with both local and foreign investors, as well as representatives of government institutions to collect first-hand information about investment opportunities and reasons why one should consider investing in the Republic of Kosova.

Kosova and its people look forward to offer you all great hospitality and offer various possibilities for investments.

the Business Horizon

11

Information is Power Using it well makes you invincible Ilir Ibrahimi CEO, Managing Partner, ProCon Group

“Information is power. But it is what you do with it that either makes you great or diminishes you,� is a widely used quote by business executives and politicians alike.

Those who know and appreciate the importance of information and communication will tell you that these kinds of quick fixes eventually come and bite you back.

How you get or pass information across, whether internally or externally, is very important for effective communication. A company that does not communicate its ideas and objectives well with its employees has a very serious challenge to achieve them. In addition, if those ideas and objectives are not communicated well externally, a company is forced into a position to explain itself, in which state the communication becomes a battle of convincing rather than an opportunity to advance and spread the message.

All these facts have sometimes led to grave misconception of the importance of public relations, strategic communication and the role they play for the success of a company. Some new initiatives are giving some hope that things might take a positive turn. One of those examples can be found on the activities of some companies that are members of the CSR Network Kosovo.

In Kosovo, in particular, considering the fact that we are undergoing a transitional phase, communication becomes even more important and lack of it bears greater consequences.

We are witnesses of too many cases when companies have paid a high price for lack of communication. This environment has also affected the methods companies and entities have taken for getting their message across.

Often the relationship between companies and the media has been built on the basis of the material gain, rather than a relationship built upon the idea of getting the message out. To this, I am afraid have contributed both: companies who instead of engaging in a well thought, well tailored strategy of communication, seek a quick fix with a media, and the media who has seen them as an easy source of a quick benefit.

12

These activities ought to be congratulated and encouraged. The presentation of the projects of two Kosovo companies, Sharrcem and Meridian, in CSR Europe in Brussels recently, is a good example that our companies can be competitive with their peers around the world. Other projects that were part of this competition, and their determination and dedication, is also very commendable.

However even these successful initiatives do not receive the well-deserved attention which is yet another example that we are apt to approach communication and dissemination of information with a very short span, rather than a long, well thought and well-tailored campaign.

Whether a public institution attempting to promote their reforms, initiatives and opportunities or a company seeking to promote a product or a service, it needs to define well ahead the message it wants to send, be consistent, and determined.

AmCham Kosovo

ÂŤ

"Information is power. But it is what you do with it that either makes you great or diminishes you."

What the public wants to hear is a good story.

More and more companies are seeing the importance of telling a good story to the public, since in the end, they are their consumers, and if they can keep them happy, with genuine good stories, than it has an effect in the bottom line as well, whether that is direct or indirect. In this light, Good PR is the telling of a good story. The better the story, the better the acceptance by the public and the better the public relations.

The importance of PR is changing and many experts of this field argue that public relations have become the most effective way of building a brand. World known companies are increasingly spending less funds in brand advertising, and rather are focusing more on public relation strategies.

In Kosovo so far we have usually seen the opposite happening. We know that a lot of money is being spent on visuals, but very little on building, maintaining, and honing, relations that can be built with well-thought and targeted PR campaigns.

This phenomenon can be witnessed in the public sector as well, which leads us to believe that this is a general trend in the country. We all remember the Young Europeans campaign, which visually presented us as a very promising society with a vibrant youth. But has the targeted message reached the audience and what effects did it have?

We have also witnessed many campaigns and conferences organized by the Public Institutions, to promote Kosovo before

investors. But have the foreign investments increased?

While visual presentations and goals are very important, I believe that nothing sticks better than a good story, a well thought and targeted message.

To tackle only the two examples taken above: each country can gather together a group of good looking youth and present them in a nicely produced video, but the impact of a life story and the visions of those youth, knowing that each Kosovar is a story in itself, could have a much stronger impact.

On the other side, would it not be the best promotion for Kosovo, if the companies and investors who have already invested in Kosovo tell their success story? Unfortunately, these cases are few but their impact would have been much more powerful and believable.

Engaging in public relation campaigns, strategic messaging, takes time, money and effort. Many do not want to engage in this kind of endeavors, but rather go for quick fixes and quick solutions. But as many success stories of those who appreciate it, and many failures of those who did not see its importance prove, the benefits ought not to be ignored but rather strongly embraced.

Some entities have already seen it, and I am certain they will be the best proof to their peers that they were right. In the end, this is a market economy and competition will determine who succeeds and who does not.

the Business Horizon

13

Finding the “Right” People Lakeisha Allen Country Manager,The Headhunter Kosovo

W

ith the national unemployment rate over 35%, it is surprising that staffing continues to be one of the biggest challenges for companies in Kosovo. Nonetheless, as one local CEO explained, “The problem’s simple: we have plenty of people to choose from, but we can’t seem to find the right people.” These elusive “right” people – well-educated, motivated, and most importantly experienced – are indeed in short supply considering the average Kosovar is 25.9 years old; barely giving them time to graduate, let alone build an impressive CV. As businesses operating in developing Kosovo overcome countless hurdles to finally grow, they are left to face an unexpected challenge: how to find qualified hires to fill the new roles created by their success?

Kosovar job seekers also have reason to be dissatisfied, as even those with degrees struggle to get hired, or get the jobs they believe they deserve. Ironically, as Kreshnik Hoxha argued in a Balkan Insight article on the inefficacy of Kosovar universities, the government’s attempt to increase enrolment in higher education and the consequent proliferation of “Mickey Mouse Universities” is actually to blame. This pejorative Disney reference describes courses “where the content is…not as rigorous…and where the degree itself may not have huge relevance in the labor market", and was coined by Margaret Hodge, a former British Higher Education Minister, while criticizing a similar UK initiative.

Unfortunately it is only after consistent rejection by employers that alumni understand the value (or lack thereof) of their education.

HR agencies have a broad range of offerings for both hirers and recruits. For businesses, core services include recruitment, staff training, and the less-publicized outplacement (think George Clooney in Up in the Air).

Since the aim of every HR agency is to help its client cut costs and increase productivity, additional services like staff leasing and payroll assistance may also be provided.

For recruits, HR agencies commonly offer career advising and help getting certifications that boost their employability (i.e. the TOEFL), and exposure to more jobs. As Joseph Daniel McCool asserted in a Bloomberg Businessweek article on the value of third party recruiting and staffing agencies: “You can’t get to the top without the headhunters. That’s as true for businesses as it is for established and emerging leaders” (read: employees).

For coveted candidates, being represented by an HR firm can mean private job offers, and help in salary negotiations. For “Mickey Mouse” grads, an HR agency’s advice on everything from their CV to their interview attire can be the difference between an offer and unemployment. Also, staffing and recruiting firms may give candidates with locally irrelevant profiles a second chance by representing foreign companies searching, for example, for inexperienced, Italian speaking Kosovars.

The realities of the Kosovo job market may not be perfect for employee or employer, but human resources agencies can address many of the problems, making it easier for employers and job seekers to find the match they are looking for. By offering useful advice to both sides, helping companies identify and develop the “right” people, encouraging candidates to reach their highest level of employability, adding new players to the job market, and introducing smart hiring practices, HR service providers can improve the existing situation for everyone.

14

AmCham Kosovo

« Conversely, HR agencies can also attract foreigneducated and experienced Kosovars home from abroad, through instant access to databases of candidates across the globe. Plus, contact initiated through a reputable HR firm can serve to legitimize the offer of working for local companies that are frequently held in low-esteem by Kosovars working internationally. As one highly qualified expat responded when asked his opinion about the job opportunity being offered to him, “Actually I didn’t really take the [Kosovar] company seriously until you [an HR firm] contacted me”.

Despite their obvious benefit, HR services are a surprisingly hard sell to many local businesses that still rely on informal networks to source new recruits. The “small market” myth permeates Kosovo’s business environment; most senior executives, in a country of two million, feel they already have an intimate knowledge of the national labor pool. This dynamic, when coupled with the proliferation of strong family networks, encourages nepotistic hiring strategies that often fail to identify wellqualified candidates. The invidious consequences of this HR culture continue to undermine the country’s labor market, as well as its longer-term economic potential. On this basis, developing a stronger role for professional recruitment firms would be an effective method of bypassing discriminatory hiring practices, while also providing opportunities for the training and development of existing staff.

“The realities of the Kosovo job market may not be perfect for employee or employer, but human resources agencies can address many of the problems, making it easier for employers and job seekers to find the match they are looking for.”

Kosovo certainly has many reasons to encourage a greater use of HR agencies, especially considering how uniquely positioned it is to benefit from that industry’s growth. From the swelling ranks of highly educated, underemployed youth, to the growing labor demands of local SMEs, as well as the localization of INGO and MNC recruitment strategies, a series of structural stimuli are optimizing the country’s labor market to the benefit of the HR sector. The experience of Albania is instructive in this regard; with a population of 3 million, the country already has over 25 established local and international HR firms.

Globally, the current recruitment market is estimated by Koncept Analytics to be around $400 billion and on-track to reach over $450 billion by 2015, with much of those numbers projected to come from developing markets.

These statistics bode well for Kosovo. Yet, in order for HR firms to foster the next generation of “right” people, significant change will be required.

Measures to professionalize business conduct in the country, including improvements to staff recruitment, training and development, are sorely needed. In this respect, the HR sector can play a role in enacting the kind of systemic progress needed to propel Kosovo to the next stage of its economic development.

the Business Horizon

15

Importance of Business Expansion in Region Ramiz Kelmendi President, Head Office, Elkos Group

1. Idea for Expansion Businesses are built based on a personal idea and the need to implement that idea, however its development as a startup begins in country of residence, by being an active participant in the domestic market, by advancing itself professionally and by hiring other relevant personnel who develop their business by locally expanding in the manufacturing, processing, consumption or service.

Based on preliminary analysis and official statistics of the domestic market size, and how much it is possible to participate in the doing business environment in that country and in order to achieve the maximum growth rate, the economic parameters of the country indicate that there is a need for expansion of businesses in the regional markets.

How to implement the idea of expansion, and why should one decide for the regional countries? a) Markets of the same region are quite similar to each other in consuming goods and services. b) Trade and distribution are similar c) Labor and other operational expenses are lower and more favorable for businesses in development. d) Easier to be managed The above mentioned elements of consumption, trade, and services facilitate the economic relationship with these countries, given that we have a similar past and have both operated in a single market. However, political relations within the countries are still not in the level they should be, in order for expansion to occur.

Kosovo market constitutes of approximately 2 million consumers, a number which is not sufficient to generate profit and consume trade goods and services, and economic inefficiency for utilization of supplying and manufacturing resources, consequently representing an inability to dominate the domestic market. Given that the economic parameters indicate that in order to have a stable and competitive business in the domestic market, the number of consumers should be over 10 million.

Therefore the businesses in Kosovo need to expand outside of the country's territory in order to establish

16

a stable and competitive economic activity. The above mentioned business economies apply for the manufacturing and processing sector, trade and any other business.

In order to expand to the regional countries, businesses should concretize the idea with accompanying projects, or detailed business plans, so that the expansion can be profitable for the existing business and in order to support the expanded branches. It should be noted that in the past, craft businesses, such as bakeries, jewelry and pastry shops, have expanded from Kosovo to the region.

. 2. Investment Capital Investment capital is essential for expansion to the regional countries, with a special emphasis given to the commercial banks, EBRD, international investment funds, Central Bank and other accompanying legislation. In order to invest in the regional countries, the following methods are usually followed: a) Purchase with participation in privatization b) Purchase and construction of working facilities c) Leasing of facilities and land These methods require certain financial capital, which presents a great challenge for Kosovo businesses, because there is a lack of trust from the commercial banks for higher financial exposure towards a client, and hesitation from banks in other countries to support the project financially.

Therefore, the investment is done through joint investment of banks and the profit of the company in its country of residence. Many of the banks which operate in Kosovo are international and have a wide reach in the regional countries, while employing regulations that restrict the financial exposure towards a business, regardless of its profitability.

Further, Kosovo Central Bank has not regulated by law this way of increasing the exposure towards businesses that have abilities for regional expansion. This matter should be urgently resolved, given that currently in Kosovo the exposing bank capital has been reduced from 20% to 15%, thus affecting the business in the country and its expansion outside.

AmCham Kosovo

With the current legal provisions the development and expansion of Kosovo businesses in the region has become difficult. Another element which is worth mentioning is that if businesses want to receive a loan, they must have a mortgage with a value which goes twice higher than the mortgage for that particular loan, which for Kosovo businesses is hard, given that the Kosovar economy is young, in transition, without great historical background, and lacks the required collateral resources. In such cases, it is preferable for the Central Bank to initiate a change of the legislation in force, in function of stimulating businesses with expansion programs.

International Financial Institutions present another great opportunity for support, even though there are numerous challenges and administrative procedures for financial exposure. This way of pursuing an investment would be profitable due to low interest rates, however it takes more time to complete the procedure – precisely a year after all requirements have been fulfilled. In order for the loaning period to be accelerated and the value of the mortgage to be decreased, the government support through respective legislation is required.

necessary information, gathered from experience as well as from the Customs, ready available consumption statistics, and the business environment of the country of operation. All of this information is transferred through collaborative offers established between businesses in Kosovo, in order to fulfill the manufacturing, processing, or service capacities to substitute regional products with those produced in Kosovo.

Meanwhile, this information encourages the creation of other consumption products. It also increases the demand for additional investments and loans from commercial banks as to maintain the manufacturing and processing investments made by the company.

3. Employment

These agreements have a special importance on the development of businesses, especially through facilitation of free movement of goods and people, elimination of double taxation, the possibility of withdrawing the capital from the country of residence, accepting quality certifications from Kosovo producers, and refunding the Value Added Tax for the exported products. Legal protection of investments from Kosovo and other laws applicable to several business areas, contribute to the protection of businesses and investments.

The profit generated in the state is also considered as investment capital which contributes towards the growth of the existing businesses and facilitates an even greater expansion in the domestic market. All of the aforementioned elements contribute to an increase of GDP and economic development of Kosovo.

5. Interstate agreements

Employment will increase due to business expansion in the regional countries: a) Direct employment, which takes place when a company in line with its expansion, it also increases the productivity and the utilization of capacities, such as production machinery, manufacturing, transportation and encourages investment on other production machineries to fulfill the needs of a larger market, and the establishment of other accompanying businesses in Kosovo which consequently correspond to the increase of employment in the country. b) Indirect employment, which takes place when an expanded business, be that in production, trade, or processing sector, presents the need for production of goods that can substitute goods of other expanded markets, encourage the production of other commercial products or professional maintenance services that can be placed on the expanded market, and are created by the increase of capacities. How to implement this in practice?

6. Free economic zones and customs

Retail provides great opportunities for sufficiently exposing products made in Kosovo, production and consumer marketing, but also means of tasting and promotion of products. This presents a crucial incentive for Kosovo producers, given that marketing expenses are low and affordable by small companies. Thus, these mutual agreements favor trade and manufacturing sectors in the country, and encourage productivity while increasing employment. If, for instance, the business is in the catering industry, in order to offer better services, seasonal employment is very likely to take place during several periods, such as annual holidays. As such, the citizens of the country where the business is expanded are also employed – consequently encouraging an increase of GDP and economic development of that country.

The aforementioned taxes have a very important effect on agricultural products, given that the competition is very high just as the protection and subsidies from the government, while the prices are fairly low as a result of transportation costs.

In the aspect of agricultural products, reimbursable VAT plays another important role. In addition, appropriate subsidies would also increase the productivity per acre of land, thus increasing the need to invest in greenhouses, in order to have crops even in colder temperatures.

4. Establishment of other accompanying businesses Businesses which are expanded in the regional countries have a special role in building other relative businesses. These businesses have a development plan which constitutes of the

In order to have manufacturing, processing, or service activities which serve the branch of the business expanded in the regional country, apart from existing capacities, new capacities ought to be built in the Free Economic Zones.

Different materials which are imported to Kosovo solely for manufacturing reasons should be custom and tax free, so that their final products do not have any tax or custom fees either.

As such, these products will be able to compete with those of other countries where the business sector thrives. On the contrary, without these incentives, the products will be uncompetitive, and hence, very prone to failure.

Based on the final results of the businesses which have expanded their activities in the region, a government business growth plan is of utmost importance. The plan should include details regarding the expansion and growth of the businesses itself, but also sections regarding the tax revenue and GDP increase in Kosovo.

“Everything which does not grow - gets smaller.”

the Business Horizon

17

The Economy, The Agreement, Europe Vlora Çitaku Minister of European Integrations of Republic of Kosovo

K

osovo government has continued implementing prudent policies for maintaining fiscal stability and macroeconomic sustainability. The latest fiscal policy decisions have been focused towards the same objective. In June 2013, the IMF has conducted its fourth review of Kosovo’s economic performance under the Stand-By Arrangement (SBA) where discussions were held on the Article IV. The technical level mission has positively evaluated country’s macroeconomic performance. All quantitative performance criteria and structural benchmarks were met, including the fiscal sustainability, the general government bank balance and strengthening of the financial system.

Fiscal developments have largely been in line with the targeted trajectory for budget execution.

Kosovo Government and the IMF mission agreed on finalizing the amendment of the rules-based fiscal framework which has been enacted by the Assembly at the beginning of August 2013. The legally-binding fiscal rule will be implemented as from 2014. The government has also prepared the draft-proposal for the rules-based framework on determining the minimum wage level. Authorities and the mission have also agreed on the broad parameters of the 2014 budget based on the fiscal rule. The fifth review is expected to take place in October 2013 after which the SBA IMF program is expected to be concluded by the end of year 2013.

The Government of Kosovo remains committed to achieve the program objectives while preserving at the same time the macro-fiscal and financial stability.

Although on a limited scale, the euro zone crisis has transmitted its effects to Kosovo. The low level of integration of the banking system in the international market and the low level of public debt contributed to an indirect impact of crisis on Kosovo’s economy, mainly through international price movements for metals and the drop on the global demand. Based on preliminary data for the end of 2012, real GDP is estimated to have

18

increased by 2.4%. A decline of consumption and exports has negatively contributed to the slower output growth. Whereas, the general investment, export of services and the slower imports of goods and services have positively contributed to the growth of output.

Growth in 2013 is estimated to be around 3.7%.

Growth is expected to be driven by the exports of goods and services and private investments. The import of consumer goods increased by 2.6% in the first half of the year in contrast to a decline of 0.02% last year. The consumer goods import represents an important indicator of domestic consumption developments although a substitution of imports with domestic products has recently been noticed, particularly in the agriculture sector. These developments signal a reasonable increase of 3.7% of private consumption. This is also supported by the increase of remittances by 15.5% in the first quarter of this year compared to the same period of last year. On the other hand, the import of investment goods has risen by 5.7% in the first half of the year signalling positive developments of the overall investment trends in Kosovo.

A very important issue, not to say a crucial one, in the further economic development not only for Kosovo but the region as well is the implementation of the historical accord reached between Kosovo and Serbia on April 19, 2013 in Brussels. The process of normalization between Kosovo and Serbia is however very complicated, stressful and in need of patience, good faith and strong personal dedication. The two Prime Ministers met over a dozen times and spent over 100 hours in talks but it is clear that the process will require continuous attention from all stakeholders. This plant will need lots of water and personal attention before it starts bearing the fruits we want to see, of friendship and cooperation. Not implementing what we agreed upon also brings unwanted situations and not only, non-implementation means keeping the statusquo. Keeping the status-quo means opening the path for escalation and regress.

AmCham Kosovo

« We need to believe in what we are doing as we need to create as much as possible support with our own local landscapes, our own voters, our own people on the necessity of closing the chapter of pain between Kosovo and Serbia and open a new clean slate of relations based on Copenhagen criteria of good neighbourly rapports. Entering this process with cynical objective of obtaining favours, finances or fine compliments from Brussels without talking in earnest to our public is counter-productive.

Considering the bitter past and the devastating wars that occurred in our region in the past decades, the countries in the West Balkans need EU more than ever, thus the European Integration theme has become a strategic objective for the Western Balkans, it has become a synonym of success, development, democracy, human rights and the rule of law. Every country in the region is aspiring to achieve these values not for the sake of EU integration as an ultimate act in itself but for the wellbeing of their citizens, sustainable living and to the contribution of peace and security in the region.

We are very happy to see all our neighbours advancing their way for a final inclusion into the EU. However Kosovo has remained in a deadlock due to several factors. We have a specific relationship with the EU. We have a special European Partnership and a sui generis Stabilization and Association Process Dialogue. For Kosovo it has become more of a political issue than for the other countries and it’s taking its toll. The passing grade for us has to be an A+ and any other grade will not be acceptable. In one sense this seems unfair that double standards are being applied when it comes to Kosovo, but in the other sense it helps us to be prepared on all issues and tasks at hand.

Although we realize and know it very well that all important decisions in the integration process are to be approved by all member states, we still think that it is absurd for the EU to not be able to reach a consensual position on Kosovo. Nevertheless we

The Government of Kosovo remains committed to achieve the program objectives while preserving at the same time the macro-fiscal and financial stability.

look forward to formal recognition by the remaining five member states since Kosovo has only contributed to the security and peace in the region and no state should feel threatened by our independence. Until then we respect their position and we are ready to answer on any issue they may have regarding Kosovo.

It might not be fair that the states that were initially admitted to the EU were not in a better position than us, or are maybe not in a better position even now – but life is not fair in general. One thing is sure though, we will not stop until we reach our goal. We will keep adopting laws, draft documents and, we will create concrete instruments to accelerate the process of integration. We will perform on each of the tasks. The rest is not up to us, the decisions are taken in Brussels and they are more than often influenced by political perceptions and are mainly inspired by the feelings of European politicians as to how “acceptable” we are. It’s human nature only.

The IFC's Trade Logistics Group, headquartered in Washington DC, implements trade logistics projects in 52 countries, including Central America, the Caribbean, Africa, Europe and Central Asia, and South and East Asia. Trade logistics reforms are designed to boost trade flows and improve the performance of the economy. Benefits are reaped at the firm level. IFC has developed a model to capture the benefits accrued to importers and exporters through trade logistics intervention.

This model allows the estimation of private sector savings for trading firms expressed in (a) reduced carrying capital for shipments while in transit; (b) reduced inventory cost; (c) reduced cargo loss and damage from pilferage or spoilage; and (d) lower fees or charges as reflected in savings in documentation costs, terminal handling charges, border clearance fees and inland transport charges.

the Business Horizon

19

Focus on AmCham Patron Members 20

TEB Bank, a model for banking services in Kosovo

AmCham Kosovo

the Business Horizon

21

Focus on AmCham Patron Members

Facilitating Business in Kosovo Maureen A. Shauket USAID Mission Director

I

n the two years that I have served as USAID Mission Director in Kosovo, I have had the opportunity to visit many businesses throughout the country, ranging from small businesses, such as software developers, event planners and bakeries, to larger enterprises, such as dairy processors, wineries and furniture manufacturers.

It has been very rewarding to experience the creativity, resourcefulness and determination of these business owners. Despite their passion and enthusiasm however, many of these business owners claim that conducting business in Kosovo remains challenging and difficult due to excessive, redundant and time consuming regulations. As a result, business expansion is constrained, thus, limiting small, private enterprises from growing and providing new jobs.

As unemployment in Kosovo remains a major concern it is imperative that the Government of Kosovo prioritizes efforts to improve the current business environment.

The result of doing so will pay tremendous dividends for Kosovo in both the short- and long-term.

In recent years, USAID has made a significant impact on Kosovo’s business environment by focusing on the creation of a more transparent business environment and strengthening relationships among the private sector, business associations and municipal governments, as well as the central government.

An important reference point for discussions with these stakeholders was Kosovo’s ranking according to the World Bank’s Doing Business Report. This report provides insight obtained from Kosovo business owners, (not government officials), about the real challenges encountered by the private sector.

When USAID’s activities to improve the business environment began in 2011, Kosovo was ranked 119 out of the 183 countries evaluated by the World Bank.

Among many other initiatives, USAID set out to work with governmental stakeholders to improve this ranking by implementing new practices to improve construction permitting, reduce trade restrictions, improve access to credit and increase transparency.

22

This multifaceted effort was driven by the needs and demands of the private sector. Working groups were formed among Kosovo private sector companies to clearly identify the issues and recommend improvements.

Armed with this information, international experts were brought in to advise local counterparts, and visits were organized to other transitioning economies who have found recent success in developing their own business environments. As a result of these efforts, important dialogue and collaborative relationships were fostered among the private sector, municipal officials and central governments.

Since the onset of these practices, there have been significant positive shifts. For instance, the number of documents required for imports by Kosovo Customs has been reduced from 8 to 3, while the number of documents for export transactions was reduced from 8 to 2. To assist businesses wishing to access trade information, USAID established an on-line Trade Guide, which is available on the Kosovo Chamber of Commerce web site to allow businesses to review the necessary import and export requirements. This results in greater transparency, an important characteristic of an open, supportive and successful business environment.

To accurately capture and assess the obstacles businesses face in municipalities throughout Kosovo, USAID supported the development of a municipal competitiveness index (MCI). The MCI provides an indepth comparison of each municipality based on a number of measures that collectively provide valuable insight about the ease of doing business at the municipal level. Kosovo is only one of a few countries in the world that has such a valuable tool available to help guide the process of business reform at the local level. Since the development of the annual index in 2011, it has promoted transparency and a healthy sense of competition and cross learning between the municipalities in Kosovo. As a strong proponent of transparency and open business environments, it has been a distinct pleasure of mine to recognize those municipalities that have achieved the best MCI ranking each year.

AmCham Kosovo

« In order to achieve a business-friendly environment we are also providing support to improve the system for enforcement of court judgments. Kosovo’s court system presently has a backlog of over 100,000 unenforced judgments. With the assistance of USAID, the courts plan to significantly reduce this backlog over the next three years. This will dramatically reduce the time needed for enforcement of rulings, while greatly improving confidence in the court system. This initiative includes the establishment of a new private bailiff system and an expanded system of mediation.

USAID is currently supporting mediation centers in two of Kosovo’s Basic Courts – Peja and Gjilan- and expects to have a self-sustaining system of mediation within the next three years. The first signs of sustainability have been marked in Gjilan, where the Court hosts the Mediation Center within its building.

Furthermore, USAID supports the strengthening of Arbitration Centers within both the American Chamber of Commerce and Kosovo Chamber of Commerce through trainings for arbitrators and tailored outreach programs in order to increase demand for arbitration. By improving the systems for enforcement of rulings, reducing court backlogs and building systems for Alternative Dispute Resolution, USAID programs will support the business community by improving their access to the court system, as well as providing a viable alternative to the courts when resolving disputes.

A particular concern for USAID is the difficulty that women and young entrepreneurs encounter in Kosovo. Women represent half of Kosovo’s human capital, yet this capital is underutilized and often ignored. Women are often unable to obtain credit from banks because property is traditionally in the name of male family members. Consequently, women entrepreneurs cannot easily access bank financing because they can offer little or no collateral to the bank. This situation must change if Kosovo is to achieve its full potential.

To help raise the profile about the challenges women face in the business community, USAID is supporting the formation of a Women’s Business Chamber. This Chamber will play an important role

Kosovo is only one of a few countries in the world that has such a valuable tool available to help guide the process of business reform at the local level.

in collaborating with government, donor and the private sector to reduce the barriers that women encounter today.

Youth are also facing serious drawbacks in the economic sector. Kosovo’s education sector and its business environment have made it extremely challenging for the younger generation and new college graduates to find employment or become business owners on their own. Many donors, including USAID, are working to address these constraints to enable a brighter future for young would-be entrepreneurs in Kosovo.

While some initiatives require long-term, sustained efforts before reforms are complete, we have already begun to see some of the fruits of our labor. When the World Bank Doing Business report was released in 2013, Kosovo’s ranking had improved to 98 out of 185 countries measured by the World Bank, an improvement of 21 places since 2011. These results are due to the combined efforts, dedication and commitment of many, including the private sector, associations, local and central governments and the donor community.

Although much has been accomplished, there is still much to be done. The Government of Kosovo has declared their goal to achieve a ranking in the top 40 countries measured by the World Bank’s Doing Business Report. This goal is admirable; the economy must remain a top priority to achieve this goal. USAID will continue to partner with the government and business community to help them achieve their shared desire to establish and sustain a more competitive business environment.

USAID is enthused about the potential opportunities for economic growth in Kosovo. While we all recognize that there are many challenges yet to be addressed, there is definite momentum and desire by the government and business community to improve the overall business environment. As USAID continues to partner with these entities, we hope they will overcome the majority of these challenges and transform the business environment to one that promotes transparency, enables access and fair opportunities for all Kosovar citizens.

the Business Horizon

23

Internet of Everything Dejan Stojanović Territory Business Manager, Macedonia & Kosovo, CISCO Systems International

AmCham: Mr Stojanović, we are in an Internet era, but does this mean that we are using 100% of internet, or are figures showing something different?

DS: Yes, we are living in an Internet era, and we can say that we are living in perhaps the most interesting part of this era where things are starting to develop.

When we talk about the Internet, most of us think about browsing the web, checking emails, checking our social media profiles, but we forget that the Internet can connect everything that surrounds us, including our homes, our pets, our food, our whole environment. Cisco estimates that today 99% of the physical “things” in the world are still not connected.

AmCham: Does this mean that we are at an absolute beginning of the Internet Era? So, what can we expect in the near future?

DS: The Internet as we know it today started to become part of our daily life approximately 20 years ago, and has already made a huge impact on all aspects of life. Now imagine what will happen when the Internet of Everything (IoE) will connect the unconnected: people, processes, data and things, making networked connections more relevant and valuable than ever before – turning information into actions that create new possibilities, richer experiences, and unprecedented economic opportunities for businesses, individuals and

24

countries. In the next decade (2013-2022) we will witness that the internet will become an integral part of majority of things that surround us and which we use every day.

AmCham: Then, can we expect that IoE will have a positive impact on both global and local economies?

DS: Yes, and that impact will be substantial. Cisco calculated that the value at stake of IoE for the next 10 years is $14.4 trillion, of which approximately 66% will come from industry-specific use cases like smart grid, connected transportation and others, whilst 34% will come from areas such as future of work (telecommuting), travel avoidance.

AmCham: Can you tell us what are the major sources of such a high value at stake?

DS: There are five main drivers behind Value at Stake which allows business leaders to start planning how they can tangibly benefit from IoE. The largest impact is coming from customer experience and the ability to reach and add more customers. In the area of innovation, IoE will mean reduced time to market.

The other three areas are supply chain and logistics, employee productivity and improved utilization of assets, leading to reduced costs.

AmCham Kosovo

AmCham: Do you have any example in some business segment about usage of IoE, some prediction?

DS: We have a lot of examples; let’s take manufacturing first. Smart factories represent one of the two largest use cases in terms of Value at Stake.

The value largely derives from more intelligent machines that incorporate better sensors, improved connectivity to other machines, and more intuitive interfaces with people. These new capabilities allow machines to be programmed more easily and make them more adaptable to their conditions so they can be more efficient at doing their work.

Another interesting area is retail, where offers will be probably in real time; promotions will be customized whether you are visiting a large hypermarket or some local store in a small city. Or try to imagine smart farms which give you precise information when you need to water your crops with the aim of having the highest yield. Or do you need to invest more money in fertilization if you want to meet or surpass the results from previous years? Technically it is not so hard to imagine - you will need to have precise sensors inside your land, and sensors on your crops, all connected to the web.

AmCham: The facts that you presented are showing that IoE will change everything. Do you think that it will somehow affect our privacy because everything will be connected, which means that we’ll share our habits with somebody or everybody?

DS: Privacy is and will remain a key topic. But it is up to us to decide what kind of service we want to use, and what kind of data we want to share.

AmCham: Thank you Mr. Stojanović for this very interesting information. We hope that IoE will come to us very soon.

DS: You are welcome. It is coming, take your seat and enjoy!

By being able to understand and predict long-term weather patterns, farmers will be able to plant crops that have the greatest chance for success.

the Business Horizon

25

Toward Sustained Rates of Dynamic Growth Jan-Peter Olters Country Manager, World Bank Office in Kosovo

“[T]he problem that is usually being visualized, is how capitalism administers existing structures,” AustrianAmerican economist Joseph Schumpeter wrote in 1942, “whereas the relevant problem is how it creates and destroys them.” In many debates on economic development, it is often underemphasized that dynamic rates of economic growth are the result of an almost violent process, unsettling for companies and households, and a conscious and courageous choice by all who commit to it.

Almost six years after independence, Kosovo finds itself at a critical juncture, at which important development priorities will need to be defined to be able to set its economy onto the right track towards vigorous growth and lasting improvements in social indicators. Given the recent performance of its economy, Kosovo is currently well-positioned to base a long-term growth strategy on the foundation of macro-fiscal and financial stability and avoid having existing fragilities (the private sector’s low productivity, high external deficits, and weak social indicators) pull down the economy as a whole. But its current economic model is unsustainable, largely because the principal engines of growth thus far—foreign aid, large public investments, and remittances from the (generally successful) diaspora—will not suffice to maintain Kosovo’s recent growth performance, let alone to generate catch-up growth rates sufficiently dynamic to close (over a reasonable period of time) the income gap with other countries in the EU. Policymakers’ challenges are complicated by the absence of (i) principal macro-economic policy tools; and (ii) a minimal “core consensus” on an overarching economic model (including the desired roles of the public and private sectors). Kosovars have been debating, often quite antagonistically, core elements of “their” economic model without converging on a consensus strategy (except for the shared conviction that lowering the high rates of unemployment/poverty and providing its young population with a long-term economic perspective would have to be the objective).

The conceptual link between the economy’s strong features (its strong macro-fiscal and financial foundations) and weak ones (the poor social outcomes) remains the private sector’s insufficient productivity,

26

largely reflecting remaining rule-of-law and businessclimate bottlenecks. Especially since mid-2011, a comprehensive reform program has been implemented, with tangible results on the ground.

However, obstacles for the private sector to start and operate a business tend to remain higher than those in southeastern Europe or the new EU member states. Asof-yet unaddressed bottlenecks in public infrastructure, state institutions, and (the implementation and uniform enforcement of) laws have affected detrimentally private-sector productivity. This prevents domestic firms from catching up with their main competitors abroad. As a result, too large a percentage of products and services made in Kosovo are not (yet) competitive—not even in the domestic market.

A sufficient number of successful SMEs, typically the backbone of any successful market economy, would allow a solid “middle class” to emerge. In its absence, it is difficult to perceive political dynamics that would foster the convergence towards Kosovo’s own economic model. A “meritoriously egalitarian” society with a lower degree of income inequality and/or higher middle-class per-capita income levels would reduce the frequency and profundity of successive (post-electoral) reversals of economic policies, thereby fostering investor confidence.

Kosovo faces these challenges like many other countries that aim at improving their economy’s growth performance. Against this backdrop, a Commission on Growth and Development (the “Growth Commission”), comprising 21 accomplished economists (including two Nobel laureates), business leaders, and policymakers (mostly from the developing world), undertook the monumental task a few years ago of filtering through the existing growth literature and available policy experience in this area, with a view to distilling common characteristics and policy decisions of 13 countries that—over the period of at least a quarter of a century—managed to grow at an average rate of more than 7 percent. The Growth Report’s inherent value rests on the encouraging findings: “One might call it a report on ‘economic miracles’,” its members argued, “except that we believe the term is a misnomer. Unlike miracles, sustained, high growth can be explained and, we hope, repeated.”

AmCham Kosovo

The prospect of country-level reproducibility is, however, constrained by the need for an across-the-aisle, long-term commitment to the overarching growth objectives and the corresponding policies required for these to be achieved: “Fast, sustained growth does not happen spontaneously,” the Growth Commission warned. “It requires a long-term commitment by a country’s political leaders, a commitment pursued with patience, perseverance, and pragmatism.”

This makes growth a political choice. To facilitate the implementation of such a pro-growth decision, the Growth Report filtered out “five striking points of resemblance”, recommending that policymakers focus on a few core areas. The overarching challenge consisted of devising a long-term growth strategy that was based on capable, credible, and committed governments and high rates of savings and investments (which, in turn, required an at least implicit “social contract” on the distribution of expected benefits). Further, countries needed the consistent focus on (i) establishing a legal and institutional framework, joint with the required public infrastructure, to

develop a fully functioning market economy; and (ii) taking full advantage of the opportunities offered by the global economy in terms of knowledge, technology, and knowhow.

Partly linked to the EU integration process, Kosovo has already put in place important elements of an overarching growth strategy, focusing on the business climate, the improved functioning of public institutions, and an institutional framework supporting the productivity of Kosovo’s economy. Eventual EU membership, paired with higher employment rates, could serve as the natural anchor for a comprehensive growth agenda. The opening of negotiations on a Stabilization and Association Agreement with the EU should facilitate a process of linking the priorities of politico-economic integration and socio-economic development, which would result in a clearer view on key ingredients to Kosovo’s economic model. Once agreed, it would give Kosovo a long-term “strategic focus” and avoid temptations of short-term “tactical gains” (particularly prevalent during election periods).

Kosovo marks significant improvement in World Bank 2014 Doing Business Report For a second consecutive year, Kosovo has managed to improve its position in World Bank’s Doing Business Report significantly jumping from the 96th (or 98th according to the first version) to the 86th position, serving as a testimony to the overall efforts for improving the business environment in the country. In addition to facilitations made in terms of registering new businesses in the country, the 2014 report reflects important improvements made in two other indicators, namely: (1) dealing with construction permits and (2) registering property. According to the official website of the report, improvements in the first indicator have been made “by eliminating the requirement for validation of the main construction project, eliminating fees for technical approvals from the municipality and reducing the building permit fee”. On the other hand, improvements in the ‘registering property’ indicator are attributed to the introduction of the new notary system and the combination of the procedures for drafting and legalizing sale and purchase agreements.

The tables below summarize the performance of Kosovo in specific indicators compared to the 2013 report, as well as a comparison with neighboring countries for two years.

The improvements listed here resulted in Kosovo being ranked as the fifth top reformer (and the first among SEE Countries) out of 189 countries included in the WBDBR for 2014. Nevertheless, further work should be done in order to make the doing business environment in the country more favorable. Decreasing the procedures required to register a business, improvements in the rule of law, seriously addressing insolvency issues, improvement of international trade, and the protection of investors are required to further improve Kosovo’s reputation in front of potential investors, while consequently increasing the overall economic development of the country.

Indicator

Change in rank

Starting a Business Dealing with Construction Permits Registering Property Trading Across Borders Enforcing Contracts Resolving Insolvency

+ + + + + +

26 16 17 1 1 3

the Business Horizon

27

IT Outsourcing and/or Cloud Computing Valon Budima Managing Director, Asseco

O

utsourcing Information Technology operations and services is not something new anymore for many organizations in Kosovo; certainly not for larger businesses. However, cloud-computing and software-as-a-service (SaaS) are still more or less not widely understood here and somehow sound too complicated or not so applicable to the local business environment.

Many argue that both cloud computing and SaaS are just new forms of technology outsourcing. Perhaps more advanced in ways how these services are delivered but basically business managers have to make almost the same decisions when they choose their IT outsourcing options. I am talking about evaluating main factors such as quality of service, ability to deliver, time constraints, security and, most importantly nowadays, the cost.

On the other hand most people agree that many business operations are taking advantage of cloud computing already in one way or another. E-mail is usually a good starting point. Especially for mediumsize organizations. Larger organizations face more security and compliance issues .

So, what are the differences? Outsourcing, software as a service, cloud computing, ... well, there are several for sure, but I think we can treat them all as synonymous terms from the business management point of view.

While everyone admits that ‘cloud computing’ as a concept has attracted much more attention and buzz (‘clouding hype’), I would say that here locally it is no big dilemma between cloud-computing vs. outsourcing.

The bigger dilemma still remains purchasing (or inhouse implement) vs. outsourcing.

Therefore, please do not mind me to simplify or, may I say, localize that cloud computing is in fact outsourcing of IT operations and services. Usually with some important differences such as when you use cloud computing most of the cases you do not have information about the physical location(s) of the IT

28

infrastructure and resources which are providing the IT services to your organization such as e-mail, data storage, document management, business process management, customer relationship management and so on. You just use the services needed for your business operations with non-stop availability by using Internet connection to somewhere in the ‘clouds’.Now, after this simplification is accepted, most managers in Kosovo face the general dilemma: outsourcing IT operations vs. buy or implement in-house the needed software applications and infrastructure. Of course, there are many factors you should consider and analyze thoroughly with your teams in this decision-making process independently of what and how many infrastructure elements or processes of your IT operations you are considering.

Cost–first of all, business and finance executives immediately notice the benefits of the ‘as-a-service’ pricing model. Pricing models based on consumption such as pay per-user, per-transaction, per-device, etc. are far more convenient than traditional fixed price deals. And as companies seek to move more of their spending from operations or running the business (currently around two-thirds of the average IT budget) to new projects and innovation, they are embracing the asa-service model.

In addition, the scalability and predictability of this model is much appreciated by finance managers. Also, many organizations are scared of bigger multi-year investments amid continued economic uncertainty, and this is fueling some areas of IT outsourcing spending over traditional, higher-budget data centre or business process management projects. Obviously, at the end of the day, one model must be cheaper than the other in the long haul. So, compare carefully but be sure to include all the elements of the cost and, very importantly, include the time factor in your calculations i.e. compare detailed and total costs of ownership vs. costs of outsourcing.

AmCham Kosovo

« Service provider availability – Let’s assume that your default position is to outsource a solution or service whenever possible. If the process or service you’re trying to outsource is something common, like a centralized CRM system, there is plenty of product and provider choice out there. If, however, you’re trying to implement something more specific, your outsourcing options might be limited. You might also run into problems finding a product or service that exactly fits your business processes. In these cases, you need to determine if it makes more sense to modify your processes to match product capabilities or to develop a product that meets your exact process.

Many organizations are too slow in changing even the most basic processes even when it is in their best interests to do so. In any case, during the outsourcing decision making process, you need to make sure that your potential provider has already the needed competences, experience and quality management system to take over and deliver the service at the quality level you and your customers expect. Beside these technical and management factors, make sure to evaluate properly financial capacity and stability of your outsourcing provider as another key factor.

Time limits–Very often, cost is not the determining factor in a build-in-house vs. outsource decision. As organizations are required to become more agile to changes, in many cases, there is a need for fast-tracked time to completion for a particular project so outsourcing the task to a company with a focus on the particular problem area or to a company with a product solution is undertaken. After all, if a company has taken the time to productize a solution and they are actively supporting a product, it’s likely that the product will undergo continued development, thus relieving the internal IT department of the need to continually expand and enhance a solution. In these cases, cost plays a secondary role to the immediate business need.

One of the most valued indicators for a business organization nowadays is how fast can it change and adapt to the market environment, and information technology is one of the main drivers of this change.

Security and Compliance – Highly secure environments remain that way by connecting themselves to as few other environments as possible.

Every time an organization outsources a particular process or service, lines of communications need to be established and remain open to facilitate that process or service. While many outsourcers have enviable security measures in place, organizations that want to outsource must make certain that providers maintain regulatory compliance as well as security measures. Failure to do so can and will open an organization to major liability.

Regulatory compliance on data privacy issues is mandatory to be addressed in any case. Make sure to evaluate and implement complete information lifecycle management processes jointly with your outsourcing provider. However, it is a fact also that industry standards are usually a few steps ahead of government regulations in acceptance of new ways of utilization of technology. So, be careful in mitigating risks but firm and fast in making steps forward in order to gain more competitive advantage.

In-house resources – Do you even have the in-house staff that can enable a new IT service which is critical for your business growth strategy? And, do not forget, usually it’s not only about acquiring a new system or software application. It is always more about operations management and agile change management during the whole solution lifecycle. So, if not, you are pretty much driven towards the outsource portion of the equation. One of the most valued indicators for a business organization nowadays is how fast can it change and adapt to the market environment. And information technology is one of the main drivers of this change.

the Business Horizon

29

The importance of Professional Training in Capacity Building Visar Jasiqi Director, AUK Training and Development Institute

R

ecently, in one of the classes at A.U.K. Training and Development Institute, one of our trainers was citing a dialogue between the CFO and the CEO of a big corporation.

Based on the research done by US Bureaus of Labor Statistic , the biggest contributors to the long-term productivity growth are Technological Advancement, Capital Investment and Improved Labor Quality. Based on this research, it is the organizational issues, not technology, that cause the biggest challenge to productivity.

This is the dialog: CFO said: “What if we train our people and they leave?”

CEO replied: “What if we don’t train our people, and they stay?”

Each business requires a skilled staff that knows the job,understands business priorities, and has the ability to incorporate new technologies and processes.Trained workforce will not just effectively do the job, but they will efficiently utilize the company resources needed to do the job right, and do it fast. Training is a way to make employees meet new responsibilities.

After a small research on the source of this dialogue, I could not get anything reliable. The words have been used on one way or another in many blogs, and they were posted all over the place, most of them unattributed. Some sites were depicting Motorola as the place where this discussion was held, but there is no hard evidence to back up this. No matter who said it, it is an interesting question.

2-

Customers are the resource upon which the success of the business depends. Customer satisfaction is the core of the selling process. One estimate is that it costs five times as much to attract new customers as it does to keep an existing one. The relationship between the customer and the organization is, therefore, an important one. Have we made our employees aware of this?

Over the course of 10 years working in the training and capacity building industry in Kosovo, I have experienced my share of this question several times, posed by businesses, institutions and organizations we serve.

In recent years that we are experiencing economic demise, we see more and more businesses that start cutting expenses in training, as means of reducing cost.

There is a misperception that training is an expense line, not an investment.

A skilled, trained workforce that can provide good services and keep a customer happy will dramatically improve bottom line performance, adding value to products and services, and making it easier to compete domestically and globally. Employees are particularly responsible for the success of the company.

While there are several reasons why you should train employees, I will mention at least four of them that demand investing in training now, more than ever: 1-

Increasing Customer Satisfaction

Increasing Productivity

3Increasing Job Satisfaction, Morale and Motivation among Employees

Success in business means providing quality work and great customer service at a good price. In a competitive business environment it requires capital investments and staying ahead with technology.

Let us face it. Nobody wakes up in the morning with a feeling that it is a good day today to make some money for the owner, or increase the shareholder value. It just does not work that way.

What drives productivity?

Improved Labor Quality 11%

In 2005, an MIT study conducted by economists from the Federal Reserve Bank, MIT, the University of Chicago, and Carnegie Mellon* resulted in startling findings about what truly motivates people.

Capital investment 37%

Technological Change and other factors 52%

1 2

30

US Bureaus of Labor Statistic-http://www.bls.gov/ Large Stakes and Big Mistakes – Federal Reserve Bank of Boston; Working Paper No.

AmCham Kosovo

It turns out that the long-held presumption that increasing income increases performance is inaccurate, except for purely mechanical tasks. In fact, the research shows that using money to encourage performance for any task that involves even low-level cognitive functioning, actually decreases performance. According to the study, replicated in different cultures throughout the world, people are truly motivated by three things, i.e.: autonomy, mastery and purpose.

While the purpose element lies on the responsibility of the leadership of the business, training can very well tackle the elements of mastery and autonomy. Investing in employees through training does not only sharpen their skills, but it increases the wellbeing of employees and reduces absenteeism, mistakes, and stress in the workplace. It increases their ability to take actions, thus decreasing the need for supervision. Above all, reduces the employee turnover. A happy workforce is a productive workforce, and a productive workforce means a happy customer.

4-Maintaining Employee Credentials/Certifications In a global competitive environment, corporate clients want to know whether your employees meet global standards that are proved through internationally recognized certification. A certified Project Manager, a certified Quality Manager and/or a certified ICT staff increases value of your business whenever pitching a new client, or applying on a new project/ tender process.

Ensure that the hard won qualifications of your employees remain up to date with regular training.

In conclusion, while the University studies tend to form an individual’s character; inspire industry knowledge and create a life-long learner; the aim of the Professional Trainings is not knowledge, but to inspire action. The objectives of the Professional Trainings are to create a turnkey operation employee that can understand the business priorities, processes and targets; that can embed the technology into his action plan, and put themselves in motion to keep a customer happy and the business running.

Consultative Council between Ministry of Finance and Business Community The business community in Kosovo will from now on have a formal mechanism to address request or issues related to the violation of their rights by Tax Administration of Kosovo and Customs.

Ministry of Finance, Kosovo Customs, and Kosovo Tax Administration (ATK) as well as the three largest business associations in our country, the American Chamber of Commerce in Kosovo, Kosovo Chamber of Commerce and Kosovo Business Alliance, signed on October 24, 2013 a Memorandum of Understanding on the Establishment of the Council.

The Consultative Council was established at the recommendation of the Ministry of Finance, given the need for further contribution to the overall development of the country, stronger economic and trade cooperation as well as facilitation of businesses’ activities and proper implementation of the legislation and the international standards.

Moreover, in addition of the increased transparency, this Council aims to fight the informal economy, as one of the major issues of the business environment.

the Business Horizon

31

Impact of Kosovo-Serbia Agreements on Reduction of Informal Economy Naim Huruglica Former Customs Director

A

s part of the technical dialog held in Brussels, Kosovo and Serbia have also discussed on the matters related to trade and border control.

The first agreement reached in September 2011 on customs stamps, enabled the exports of Kosovo goods to Serbia as well as the transit movement of these goods through this country, which was not possible since 2008. Although Kosovo's exports are negligible compared to the imports from Serbia, the use of land routes through Serbia has significantly reduced the transportation cost for our exports to other countries that are mainly EU countries.

The other important agreement reached in the process of dialog is the agreement for integrated border management.

Since February 19, 2008, when two border crossing points in the northern part of the country were destroyed, the lack of Customs staff in this part of the country, has enabled a massive smuggling of goods from Serbia, which in addition to the direct negative effect on our country's budget, was a serious threat to the open competition as well.

On December 20, 2012 two joint border crossings with Serbia were opened, followed by two others on December 31, 2012. Today, in all six border crossing points with Serbia the work is done under the integrated border management concept, where the distance between the police and customs officials of both countries, is not longer than 5 meters.

Now it is difficult for businesses to avoid border control, which was present until December 20, 2012, because the distance between the border crossing points in some cases ranged up to 6 kilometers, where certain businesses after passing the border, travelled through illegal roads in order to avoid Customs checks on the other country.

Bringing the two parties in a common space has even minimized the use effect or the so-called "green line border." Both, Kosovo and Serbia have exported goods which were exempted from VAT and excise duties, whereas bypassing of authorized border crossing points implied that they were not exempted from taxes in the exporting country.

Last but not least, I will emphasize the agreement on the electronic exchange of trade data, which will enable both parties to notify each other on the shipments that are headed towards the other country, even if they have not reached the border crossing point yet.

This exchange of information is operational from September this year, and it will help prevent any attempts of fraud, either through unfair declaration of value and origin of goods, or other possible frauds.

In conclusion, the implementation of these agreements will largely help in prevention and fighting of informality by both countries involved in the dialogue, but will also facilitate the legitimate trade between the two countries.

The implementation of this agreement benefits fighting of informality, which has been very active especially in the northern part of the country.

32

AmCham Kosovo

PwC to invest $60 million to enhance capabilities and expand service offering in Central and Eastern Europe

P

wC will invest $60 million in Central and Eastern Europe (CEE) over the next three years, to enhance industry and specialist expertise and strengthen its lead in the market. The investment will be funded by PwC UK and will focus mainly on bringing in leading talent from the market as well as seconding specialist partners and directors from PwC’s global network.

Michael Kubena, CEO of PwC CEE commented on the motivation behind the investment: “As our markets mature, our clients are demanding more from us, and we will need to bring more to the table if we want to retain and build on our number one market position. We need to bring broader, deeper and better integrated offerings that address their unique challenges. We began expanding our range of industry and technical capabilities several years ago, and have already had considerable success. Working more closely with our UK firm will allow us to accelerate investment in our business and more rapidly develop new skills and value propositions that will benefit our clients and drive sustainable profitable growth. At the same time, it will enable us to offer interesting career development opportunities for our people in CEE.” Shifting economic power to emerging markets According to PwC’s Global Annual Review, there are five global megatrends that will transform the future of business around the world. One of these megatrends is the shift in the global balance of economic power from developed to developing countries. The next decade will see this rebalancing reach a tipping point, as emerging markets expand their global reach and influence still further. In 2009, the total gross domestic product (GDP) of the E7 – the world’s seven leading emerging nations –was about two-thirds that of the G7, their developed counterparts. By 2050 these positions will be reversed, with the E7’s aggregate GDP rising to almost double that of the G7.

Ian Powell, Chairman and Senior Partner of PwC UK, commented: “We are investing in our international network where there is significant potential for higher growth. It is critical that we are well positioned to help our clients benefit from fast developing economies and to work with new clients as they grow.”

The funding will centre on the industries, geographies and services which are likely to drive economic growth in the region – particularly the larger markets, such as Russia and Poland, as well as high growth economies, and key sectors including oil and gas, utilities, mining, financial services and the public sector.

PwC Kosovo Country Managing Partner, Paul Tobin, commented that "with the recent economic and political developments in Kosovo this investment will ensure we will have even stronger capabilities and resources to invest in bringing the fullest range of skills and experience from the PwC network to our clients and future investors in Kosovo.

Our combination of international and local expertise will continue to be fundamental to the high quality of advice and assistance we offer".

the Business Horizon

33

Entrepreneur and Entrepreneurship Forgotten steps Valon Bytyçi Finance Officer, American Chamber of Commerce in Kosovo

D

evelopment of new startups established by innovative entrepreneurs in Kosovo depends on the doing business environment, including the legal and political environment as well as human resources that are utilized by these enterprises. The development of competitive products or services also contributes towards the success of an enterprise.

However, new business ideas do not always yield the expected results.

There are several factors that influence the development of a startup business, as well as of the entrepreneur. The problems which can arise when starting a business and its development in the further stages of maturity can disorient the long term purposes of the entrepreneur, ultimately limiting his or her ability to continue with new ideas and businesses. Throughout his or her work an entrepreneur in Kosovo can avoid several steps, which lead to a dependency of his or her presence and management of the existing business. This is a consequence of high commitment of “the heart and the soul of the company�, which is considered as a sole driving force of all activities.

Structure the business at the beginning. On the initial stages of businesses, young entrepreneurs usually focus on finding funds to implement their ideas, whereas later they tend to focus on the improvement of the products or services they offer in order to increase their share on the market. As an entrepreneur, the importance of structuring a business lies in hiring reliable people to work in the business. This does not imply the hiring of family or friends. Selecting people with experience and the right expertise can help the enterprise in long term, although at the beginning it can be more costly. Communication channels can facilitate forms of communications between the levels of management in the enterprise and lower the tendency for misunderstandings. Communication channels also facilitate the feedback about the employees, which

34

could help in internal developments in the enterprise, as well as feedback from clients about the products or services in the market.

Utilization of financial control system facilitates faster decision-making based on accurate information, and the idea that the entrepreneur is always informed about where his or her money is spent, helps him or her on the day to day activities. The whole business activity should be documented from the beginning, a process that is not being largely practiced within Kosovo businesses.

Every financial transaction and decision that affects the enterprise should be recorded and saved for future reference. This is more similar to the activity of a larger business with richer experience, but entrepreneurs who aim to mold their business into successful corporations, should work and act as a corporation from the beginning.

Networking. Joining business networks, such as chambers of commerce and business associations, does not only help create more friends and contacts that can be potentially beneficial to the business, but also helps in promoting the resources and potentials that the enterprise has for further development. Personal contacts and friendships can support entrepreneurs in their initiatives, but also challenge their implementation.

Even though they are not direct part of the business, they can provide new ideas and advice to the entrepreneur. In most cases, meetings with executive directors which can be arranged through networking in the aforementioned organizations can bring significant motivation, and a clear vision of what an entrepreneur is able to achieve by continuously working hard in the startup business. By becoming part of the groups of successful entrepreneurs who generate great ideas and projects, the young entrepreneurs will also be encouraged to think along similar lines.

AmCham Kosovo

Withdrawing from the enterprise but not from entrepreneurship. At the beginning, the entrepreneurs do a lot of work on their own, because of financial constrains. However, with the development and growth of the business, this burden is usually decreased and shared with new employees, given that the former cannot fulfill all the responsibilities.

Successful entrepreneurs should have the ability to know when to gradually withdraw from the business and pass the responsibilities to more credible and professional staff. On the contrary, the extensive engagement of the entrepreneur will be transformed into monotony due to his or her focus on daily administrative activities and not on creative ideas that can lead to the establishment of new businesses Withdrawal from the enterprise, however, is the largest fear of every Kosovar entrepreneur, given that he or she can lose the control over his or her enterprise. Further, the idea that it is only him or her who is capable of completing several tasks in the enterprise poses another barrier in the process of their withdrawal from the firm, as well as the reason that a lot of time is required to train the successor to manage the enterprise. By informing the successors on time about the expectations of the owner can make it easier for both

parties to accept mistakes and have the opportunity to react, thus avoiding potential mistakes faster. In order for the business to be successful, there should always be a way to keep the owner away from the day to day operations.

The aforementioned steps are not unknown to entrepreneurs in Kosovo, but they have rather been forgotten in principle. However, if these steps are followed, Kosovo would be proud of its existing businesses for being very sustainable and profitable, whereas the experience of these businesses would be easily transferred to new enterprises which will most likely follow this path of success, as the only possibility.

The entrepreneurial spirit does not stop with one business only.

New ideas coupled with the courage to take risks and the professional background, encourage an entrepreneur to interpret the first success as a motivation for starting other businesses. Such a commodity is not offered to the majority of entrepreneurs in Kosovo, therefore one may think that even if majority of entrepreneurs are successful, the chances that they move to new enterprises are very low in comparison to other more developed countries.

Alternative Dispute Resolution Center Arbitration, Commercial Mediation and Labor Mediation Services

Efficiency Speedier Resolution Less Costly Closed Hearings and Confidentiality Less Adversarial Process Professional Arbitrators International Enforcement of Awards

www.adr-ks.org

American Chamber of Commerce / St. Perandori Justinian No 16 / Tel +381 38 609 013

the Business Horizon

35

Legislative and policy highlights July - September 2013 Law on Construction Products The Law No. 04/L-181 on Construction Products was approved in the Assembly of Kosovo on June 13, 2013. This Law aims to determine the technical requirements and evaluate whether the construction products are in accordance with the regulations assigned by Article 4 of this Law. If the standards are met, then the law specifies that these products have the right to enter the market and be used in production. The law specifies that each product ought to have the Declaration of Conformity before entering the market. Obligations of importers and manufacturers are also included in the Law. Administrative Instruction No. 2013/ 03 on the Independence of the Auditor Kosovo Council for Financial Reporting (KCFR) which operates under the Ministry of Finance has the authority to decide the way of financial reporting of business organizations in Kosovo, including the certification of accountants and licensing of auditors. The Administrative Instruction emphasizes that a legal auditor of an auditing firm and the entity which is being audited should not intervene in each other's decisions. Further, owners or shareholders of auditing firms cannot be owners, shareholders, nor have any connection which might be perceived as a conflict of interest with the entities being audited. In addition, the AI regulates the auditing of publicly owned enterprises and the role that the Board of Directors of these enterprises plays in this aspect.

Administrative Instruction on the Manner of Establishing and Functioning of Business Incubators Through this Administrative Instruction, which is now in the public consultation phase, the procedures of establishing and functioning of Business Incubators, which aid the creation and development of Micro, Small, and Medium Enterprises in the country will be set. The Administrative Instruction states that the main function of the Business Incubators is to help businesses on their initial stages of growth and development, to offer them administrative and technical support, consequently decreasing the expenses and risks of establishing a business. Further, the issue of who can establish these Incubators and their legal status is also discussed in this document.

Law on Amending and Supplementing the Law no. 04-L-165 on Budget of the Republic of Kosovo for year 2013 Law no. 04-L-165 on Amending and Supplementing the Law on Budget of the Republic of Kosovo for 2013 was approved by the members of the Assembly of Kosovo on July 25, 2013 and was enacted by the President on September 12. Apart from alterations on the budget allocations, which have been attached in the end of the document in tabular form, the Law also specifies that all public funds collected by custom clearance of goods in the north of the country, will be sent to the Kosovo Fund and be further used for establishing the Development Trust Fund. Further, this Law dictates that the funds destined for former politically imprisoned and persecuted should be submitted to the Ministry of Labor and Social Welfare, which will then allocate them accordingly.

Law on the Trade of Strategic Goods On July 29, 2013, the Assembly of Kosovo approved the Law on Trade of Strategic Goods, whereas this law was promulgated by the Decree of the President of the Republic of Kosovo on August 16, 2013. This law aims to regulate trade, i.e. exports, imports, transit, trans-loading, re-export, and re-transferring of strategic goods. Further, this law also aims to fulfill the obligations assigned by international agreements regarding mass destruction weapons and other strategic goods that can be used for

36

military purposes. Moreover, the manner of establishing the Council for the Control of Strategic Goods Trade, which will constitute representatives of MTI, MFA, MIA, MSF, and Kosovo Customs, is also determined by this law. The Council will be responsible for drafting the List of State-Controlled Strategic Goods. As per the law, this List will include the European List, the joint military Lists, and other goods that need to be controlled for matters of national safety etc. The Council holds the right to issue licenses for trade with these goods.

Law on Foreigners Assembly of Kosovo has approved the Law on Foreigners on July 31, 2013. This Law regulates the entry, movement, residence and employment of foreigners in our country. Some of the issues discussed on the law include residence permit, visa regime, and employment of foreigners in Kosovo. Article 69 of this law includes the documents which ought to be submitted for receiving a residence permit for employment, namely the employment contract, respectively a written confirmation for concluding a contract of employment or adequate evidence of employment; evidence on foreigner's education, qualifications acquired and training; evidence on registration of the trade company, association, representation and turnover in the Republic of Kosovo. By entering into force, this law has abrogated, the Law No. 04/L-069 for Foreigners and the Law No. 03/L-136 on Granting Permit for Work and Employment of Foreign Citizens in Republic of Kosovo. When comparing this law with one of its older versions, it can be noted that the procedures for acquiring a work permit for foreigners have been simplified. The American Chamber has also offered its recommendations regarding the simplification of these procedures. The same issue has also been discussed on the meetings of the National Council for Economic Development.

Law No. 04/L-174 on Spatial Planning Law on Spatial Planning was approved by the Assembly of Kosovo on July 31, 2013. The main purpose of this Law is to establish a proper spatial plan of the country in accordance with the proper utilization of the land, protection of the environment, while also respecting the natural and cultural heritage. Further, the Law aims to regulate the appropriate usage of funds dedicated to this aspect, and ensure a spatial plan which is convenient and efficient for citizens. The Law specifies the principles upon which spatial planning should occur, the spatial planning levels, documents, and the responsible entities at central and local levels of government.

Law No. 04/L-210 on Ratification of Financial Agreement between the Republic of Kosovo and the International Development Association – Second Additional Funding for Energy Sector CleanUp and Land Reclamation Project- CLRP This Law has been approved on July 31, 2013 by Assembly of Kosovo for ratifying the financial agreement signed on May 15, 2013, between the Government of Republic of Kosovo and the International Development Association regarding the second additional funding for energy sector clean-up and land reclamation project – CLRP. The agreement specifies that according to the deadlines and the assigned conditions by the agreement, the Association grants a loan on the amount of two million and eight hundred thousand Special Drawing Rights (SDR 2,800,000) to the Republic of Kosovo. This loan will be used by the unit of MESP, which will implement the project of energy clean-up and reclamation of land in the country.

AmCham Kosovo

Law on Ratification of Framework Agreement between Government of the Republic of Kosovo and European Investment Bank which governs the activities of the European Investment Bank in Kosovo Based on Articles 18 and 65 (1) of the Constitution of the Republic of Kosovo, Assembly of Kosovo approved the Law on Ratification of Framework Agreement between the Govearnment of the Republic of Kosovo and European Investment Bank which governs the activities of the European Investment Bank in Kosovo. This agreement was signed on June 3, 2013 in Prishtina. The agreement specifies that the European Investment Bank can exercise its activities, including financing through a loan, guarantee, equity, quasi-equity or any other manner of financing technical assistance in Kosovo. The agreement also specifies some other issues, such as privileges and immunities of the Bank and its representatives, dispute resolution etc.

Draft Law on the Ratification of the Articles of the Agreement of the Council of Europe Development Bank and the Membership in CEB On August 27, 2013, Kosovo Assembly reviewed the Draft law on Ratification of the Articles of the Agreement of the Council of Europe Development Bank and the Membership of Republic of Kosovo in CEB. The purpose of this Law is the creation of legal provisions for the completion of membership procedures of the Republic of Kosovo in the Council of Europe Development Bank. In addition, the Law aims to complete the necessary administrative procedures for membership as well as ratification of CEB’s status. Further, the obligations of the Republic of Kosovo after it becomes a member at CEB and the manner of selecting the representatives of the Republic of Kosovo at the bank are also specified by this Law.

Draft Law on Foreign Investments

Public Explanatory Decision No. 01/2013 on Implementing the Rules of the Law on Pension Funds of Kosovo

Draft Law on Foreign Investments was sent to the Assembly of Kosovo on August 19, 2013. The main purpose of this draft law will be the encouragement, promotion, and protection of Foreign Direct Investments in the country. The law guarantees that foreign investors will have equal rights with the domestic ones and that their investments will be secured. The draft law emphasizes non-discrimination, compliance with obligations stipulated, expropriation and nationalization, and the manner on which foreign investors can liquidate their investments. In conclusion, the law emphasizes the importance of Foreign Investment Registry which constitutes of all foreign investments in the country and is updated twice a year. Currently the law is on public consultation phases at the respective parliamentary committee.

The Director of Tax Administration of Kosovo has issued the implementing rules of the Law on Pension Funds of Kosovo with the purpose of clarifying how the Tax Administration of Kosovo interprets and implements the provisions of the respective Law. According to the Law, all employees, employers, and the self employed who are citizens of Kosovo and perform their economic activity in Kosovo, are obliged to contribute to their pension savings. Taking intoconsideration that TAK is the agency charged with fulfilling these obligations, it reserves the right to control and enforce collection of pension contributions. Further, this explanatory decision also reviews the tax implications, the basis for calculation of employee’s pension contribution and their declaration, and all other Articles as mentioned in the Law.

Draft law on Amendment to the Law No 03/L-222 on Tax Administration and Procedures, as Amended and Revised by Law No. 04/L-102

Administrative Instruction of No. 05/2013 on Application of Flat Rate Value Added Tax on Agricultural Producers

Assembly of Kosovo reviewed the Draft law on Amendment of Law No 03/L-222 on Tax Administration and Procedures, as Amended and Revised by Law No. 04/L-102, on August 13, 2013. The main purpose of this Law is to amend and supplement the Law No. 03/L-222 on Tax Administration and Procedures, in order for the Law to be updated and in accordance with the amendments and the current terminology. The main reformulations done in the Law include changes on the language used, a deletion of Article 1A, and a complete reformulation of the Article 80 which discusses the issue of cases reviewed by the Independent Review Board, etc.

This Administrative Instruction issued by the Ministry of Finance aims to apply the flat tax rate scheme for agricultural producers in the country, in accordance with the Law on Value Added Tax. This scheme will apply to all agricultural producers who have difficulties in paying the VAT, but their goods are sold to taxable entities. The AI specifies that all agricultural producers, whose annual turnover does not exceed the levels assigned by the Law on VAT, have the right to apply for this scheme. Article 8 of this Administrative Instruction includes the list of agricultural products that are covered by this scheme, such as general primary agricultural products; decorative, aromatic, medicinal plants produced naturally or in green houses; production of mushrooms or forest fruits; production of seedlings; and dairy products.

Draft law on Permit and License System On August 26, 2013 the Draft law on Permit and License System was presented in the Assembly. According to Article 1, the main purpose of this Draft law is the establishment of regulations and principles regarding the system of granting permits and licenses in the Republic of Kosovo.

Further, it is the Government’s duty to control and regulate private enterprise, public health, and other citizen rights, through this Draft law.

The document also specifies that the permissions will include notice, registration, permit, and professional license, and that the Professional Licensing Board is the competent authority in any sort of licensing and permitting. Further, the transferability of permissions and their suspension or revocation is also regulated in the Law. The initiative for amending the procedures required to receive permits and licenses has emerged from the National Council for Economic Development, with the aim of reducing the doing business bureaucracy.

Decision on Changing the Excise Tax Rate on Tobacco On a meeting held on September 19, 2013, the Government of Kosovo approved the request of the Ministry of Finance on increasing the excise tax rate on tobacco. According to the decision, the excise tax rate of products with the customs code 240220 and 2403 is increased from 27 euro, to 30 euro per unit, starting on October 1, 2013; whereas, the same rate will increase from 30 to 32 euro per unit, starting from January 1, 2014. Also, the decision recommends that the Ministry of Finance consults the Parliamentary Committee on Budget and Finance, and is obliged, together with Kosovo Customs, to implement this decision.

the Business Horizon

37

Draft law on Amending and Supplementing Law No. 03/L-229 on Protection of Competition

fulfillprinciples of transparency and collaboration between citizens, and private and public institutions.

Draft law on Amending and Supplementing Law No. 03/L-229 on Protection of Competition has been distributed to the members of the Assembly of Kosovo for review with improvements and amendments.

The draft law foresees the reduction of the maximum punitive measure for companies from 10% of total turnover to 7% of total turnover for the last three years. Further, with the new draft law, the deadline for reaching decisions has been shortened from 60 days to 40 days, although the initial proposal was to extend it to 4 months. Furthermore, paragraph 4 of Article 62 of the initial law, and has been replaced with a provision that states that an appeal against the Decision of the Competition Authority postpones the enforcement of such adecision. AmCham has offered a series of comments and recommendations regarding this Draft law in the consultations held by the Parliamentary Commissions, some of which have been taken into consideration through these reformulations.

Decision on amending and supplementing the Legislation Program of 2013 of the Government of the Republic of Kosovo The government of Kosovo has taken the decision to amend and supplement the Legislation Program, whereby the following draft laws have been included: Draft law on Amending and Supplementing the Law No. 04/ L-127 on Agriculture Registration, Draft law on Amending and Supplementing the Law No. 03/L-222 on Tax Administration and Procedures, amended and supplemented by the Law No. 04/L-102, Draft law for amending and supplementing the Law No. 02 / L – 123 on Business Organizations, which have been sent to the Assembly for review by its members. Draft law on Trepça is also included in this list, and is estimated to be very important for the future of the enterprise.

Free Trade Agreement with Turkey

Regulation no. 06/2013 on Conformity Mark The Ministry of Trade and Industry (MTI) has issued the Regulation on Conformity Mark, on August 20, 2013. Through this document, MTI aims to assign the shape, content, and utilization of the conformity mark of the Republic of Kosovo. Further, the regulation emphasizes that with affixing the conformity mark, manufacturers take responsibility for the conformity of their products with the requirements set out in accordance with the provisions assigned for that product. The document also specifies the conditions and rules of affixing the “KK” mark, as well as the transitional and repealing provisions.

Decision on the proposal from the Government of Kosovo for the chairman and members of the board of Procurement Review Body Government of Kosovo gave its proposals for the chairman and members of the Procurement Review Body. Hysni Hoxha was proposed as a candidate for chairman, whereas Ekrem Salihu, Tefik Sylejmani, and Vjollca Kurtishaj were proposed for regular members.

Decision to appoint the chairman and members of the board of Kosovo Energy Corporation Public Enterprise J.S.C

The Republic of Kosovo and that of Turkey have agreed to create a free trade zone which includes the trade on goods and services, in accordance with this Agreement and in compliance with Article XXIV of GATT 1994 and Article V of the General Agreement on Trade Services (GATS). According to the agreement, the custom duties which will be removed include tariffs or payments of any kind placed for or with regards to import or export of goods, including any kind of additional taxes or payments that are placed for or with regards to import or export, without including internal taxes, protective measures, and anti-dumping or countervailing measures. For agricultural goods, as specified in Annex II.3, Kosovo’s products will be equally treated as those of the European Union. Custom duties for industrial products, specified under Annex II.2, under “category 4” shall be gradually reduced and ultimately eliminated in four equal stages; those under “category 6”, in 6 stages, “category 8”, in 8 stages; and for “category 10”, in 10 equal stages. The Agreement should first be ratified by the Assemblies of both countries, in order for it to enter into force on the first day of the second month after the date of acceptance of the last written notification through diplomatic channels of both of the countries.

The Government of Kosovo decided to appoint the board of the Kosovo Energy Corporation Public Enterprise. According to the decision, Berat Rukiqi was appointed chairman of the board, whereas Haki Mjeku, Enver Muli, Ranko Makic, Burim Leci, and Pranvera Dobruna-Kryeziu, were appointed members, for a three-year mandate. The appointed candidates are obliged to fulfill their responsibilities and tasks as assigned by the Law on Public Enterprises.

Decision for membership in the Open Government Partnership – OGP Organization In a meeting held on July 9, 2013 the Government of Kosovo decided to initiate the procedures for membership of the Republic of Kosovo in the “Open Government Partnership – OGP” Organization. The decision states that the Ministry of European Integration is responsible for establishing a Coordinating Group which will be co-chaired with a representative of ‘Lëvizja Fol’, and will include members from business associations and other representatives of the civil society. Through becoming a member, the Government of Kosovo will be obliged to

38

AmCham Kosovo

Official AmCham Kosovo Drink