01 August 2024, dtt-net.com – Kosovo’s economic challenges are marred with the ongoing increase of trade deficit, caused by mounting imports, weak production and low exports. In order to overcome present situation and to give new impetus to economic development of the country, it is urgently necessary for Kosovo to create its own bank focused on boosting local production, which would be called the Bank of Kosovo for Production (BKP).
By: Skender Xhakaliu @AmbXhakaliu and Ekrem Krasniqi @E_H_Krasniqi
The need for the bank
Low level of production and manufacturing in Kosovo has led to increase of trade deficit over the years, especially in the last three years (see bellow the import and export diagram 2005-2023, created from Kosovo Agency of Statistics data).
In order to reduce it, it is necessary to increase local production and gradually start replacing imported goods with those produced locally as much as possible. An effective way to achieve this goal is to create a local bank focused on helping local companies already involved and new ones willing to engage in production/manufacturing sector.
What is the Bank of Kosovo for Production (BKP)?
BKP would be a financial institution created on the basis of a public-private partnership (PPP), with a sole focus on financing and supporting the production sector of Kosovo. The bank would offer loans with lower interest rates than existing banks in the financial market of the country.
Why is it necessary to create BKP?
Reducing the Trade Deficit:
The main goal of BKP must be to help reduce the trade deficit by increasing local production and replacing imported goods with those produced locally. Increasing domestic production for local market and exports would gradually reduce dependence on imports and reduce trade deficit.
Support for the private productive sector:
Providing loans with lower interest rates of the sector will help private companies grow and develop, contributing to the overall economic development of the country.
Employment Growth:
With the increase of production capacities, new jobs will be created, thus improving the socio-economic well-being of citizens.
Product Quality Improvement:
Some of producers in Kosovo have difficulties with the quality of their products, compared to the imported ones present in the local market. BKP would provide financial support for improving the quality of products at the same time, making them more competitive in local and international markets.
Capitalization and Structure of the Bank:
The bank should be financed by a combination of public and private financial sources.
Public sector:
The participation of the government and public joint-stock enterprises should be 51% of the initial capital.
The private sector in Kosovo and Diaspora:
The local private sector and that of the Diaspora should participate in the bank’s initial capital with the rest, i.e. 49%. Within this framework, private local companies and those of the Diaspora, as well as the citizens of Kosovo and from the Diaspora, should have to have the door open to invest and be shareholders in the bank.
Source for initial capital:
The initial capital of the government part should be sought in three main addresses:
a) Budget surplus: Part of the budget surplus e (surplus) of the current year that can be re-destined by investing in the creation of the bank.
b) Re-destination of funds: Funds provided for some large infrastructure projects can be re-destined for the creation of BKP, since the investment in production is of greater importance for the economic development of the country, considering increasing trade deficit.
c) Pension Savings Fund (TRUST): The return to Kosovo of a part of the Pension Savings Fund that has been invested abroad can be used as a participating source for the initial capital for the bank, thus making TRUST part of 51% shareholder of the public sector together with government and public enterprises.
European and International Financial Institutions involvement (EIB, EBRD and KfW)
Co-financing with international banks is an additional way of expanding the activities of BKP in specific projects in the local production sector.
For certain production projects, BKP can request co-financing from European public banks, primarily from EIB, EBRD and KfW. These projects may include the use of renewable energy, environmental protection and ecology and energy efficiency.
Recycling up to semi-final or/and final product is a category of these types of production/manufacturing projects, besides other investment projects that would use renewable energy component in manufacturing projects of existing and new factories.
Benefits of creating BKP
Increase in State Revenue: The Government of Kosovo would benefit from new taxes from the production of goods placed in the local and foreign markets, as well as from the employment of citizens in these companies.
Fiscal incentives: The government can re-design fiscal incentives for companies that increase their current production capacities, as well as for new companies that enter the production/manufacturing sector.
Dividends and Financial Benefits: Shareholder and non-shareholder enterprises of the bank would benefit from low loan interest rates for engaging in production and manufacturing, while shareholders would benefit from the bank’s dividend too.
Increased Investments and Competition: BKP can become a shareholder in successful client companies, thus increasing investments and competition in the local market.
The role of the Diaspora as a shareholder in the BKP
The Kosovo Diaspora has always played an important role in the economic and social development of Kosovo. With their remittances, members of the Diaspora have supported their families and contributed to the country’s economic dynamics since the end of 1998-1999 war. However, it is time for this contribution to go one step further and enable Diaspora to be directly involved in the creation of the bank.
The Diaspora’s strategic role as a shareholder:
Financial Contribution: The Diaspora is a additional source of capital that can be invested in strategic projects in Kosovo. Being shareholders in BKP, individuals and businesses of the Diaspora can contribute financially to the increase of the country’s production capacity.
Transfer of Knowledge and Technology: In addition to the financial contribution, members of the Diaspora can also bring advanced knowledge and technology from the countries where they live and work. This would help improve production processes and increase the quality of local products.
Expanding Markets: Through their international connections, the Diaspora can help expand markets for Kosovar products, thus helping increase exports and reduce the trade deficit.
Diaspora Benefits from Participating as a Shareholder:
As shareholders, Diaspora members will benefit from the bank’s dividend and from the financial benefits of successful projects.
Impact on the Economic Development of the Country: By being shareholder in BKP and at the same time using the loans from the very same bank for investment in production sector, this new involvement of Diaspora will have a direct impact on the overall economic development of Kosovo.
Increasing Awareness and Commitment: Participation as shareholders will increase awareness and commitment of the Diaspora for the development of Kosovo. This engagement will create a stronger connection between the Diaspora and their country of origin.
Challenges and Solutions for Diaspora Engagement:
It is important that BKP has a clear communication strategy to inform and engage the Diaspora. This may include organizing conferences, seminars, and regular meetings with members of the Diaspora.
The government and BKP should create facilities for Diaspora investments in the production sector, including fiscal and administrative facilities. This would help attract investments and increase the participation of the Diaspora as shareholders in BKP.
It is imperative that BKP has reliable and transparent structures to ensure that Diaspora investments are protected and used efficiently.
The government’s role in encouraging Diaspora participation:
The Government of Kosovo should play an active role in encouraging the participation of the Diaspora members as shareholders in BKP. This may include the establishment of supportive policies and fiscal incentives, as well as other measures of a stable and favourable environment for investment. Also, the government can undertake awareness campaigns to promote the benefits of investing in BKP and encourage the Diaspora to actively engage in this initiative.
Conclusion
It is urgent for institutional decision-makers in Kosovo, the local private sector and Diaspora to mobilize and to jointly tackle the ongoing harmful trade deficit. The Bank of Kosovo for Production (BKP) is the missing action so far. Such an undertaking can change the negative trend, stabilize its economy, improve purchasing power of citizens and at the same time make the country a serious contender for EU membership in terms of economic sustainability, regardless of political challenges it faces at the moment because of non-recognition by five of EU member states.
At the same time, boosting local production, reducing trade deficit and improving Kosovo’s economic muscles has its positive effects in the longer term as well, in the scenario when Kosovo would never be allowed to became full fledged member of the EU.
(About the authors: Skender Xhakaliu is the former Ambassador of Kosovo to Denmark and Germany. He is currently a member of the Presidency of the Diaspora Business Chamber. Ekrem Krasniqi is founder of the news agency dtt-net.com and journalist based in Brussels)
