Ethnic Albanians chart Kosovo path

By Dan Bilefsky
Tuesday, March 4, 2008

PRISTINA, Kosovo: Bekim Kuqi has braved civil war, exile, bombs falling on his factories and a remote-controlled car filled with explosives detonating inside one of his stores. So the ethnic Albanian entrepreneur says he is prepared for the daunting challenge of doing business in the newly independent Kosovo.

The electricity grid is so unreliable that just keeping the lights on in his retail stores is a daily struggle, forcing Kuqi, 33, to spend €1,000 a day, or about $1,500, on 25 backup generators. Even then, shoppers browse with the lights flickering on and off. He is encouraged by the strong hunger for consumer goods in a place where half the 1.9 million inhabitants are under 25. But he also despairs that the average monthly wage of roughly $220 means most people can afford little more than a Coca-Cola at one of his stores.

"I put my faith in God," Kuqi said from his office next to one of his gleaming new Ben-af department stores, where stylish mannequins are posed in the giant glass facade. "I often think that staying here requires too much sacrifice and I should just leave. But I belong to this place."

Two weeks after Kosovo's ethnic Albanian leadership declared independence from Serbia, with the backing of Washington and the European Union, Pristina pulsates with 20-somethings crowding new cafés and shopping malls. But such superficial signs of rejuvenation belie the harsh reality of a newborn nation, whose existence is challenged by Serbia, Russia and EU countries like Spain that refuse to recognize it.

Even if Kosovo can overcome these political hurdles, its economy is so devastated that it is forced to import basic staples like milk and meat, while it is ranked by Transparency International, the Berlin-based corruption watchdog, as the world's fourth most corrupt economy, after Cameroon, Cambodia and Albania. Whether Kosovo can build a successful economy will help determine if it can become a full-fledged country and stabilize the Balkans or remain another adopted orphan of the West.

A legacy of violence and uncertainty has not helped Kosovo. When Slobodan Milosevic was Serbia's leader, he revoked the province's autonomy in 1989 and fiercely repressed the ethnic Albanians, some of whom eventually turned to armed rebellion. For the past eight years, Kosovo, a predominantly Muslim landlocked territory, has been under UN administration after NATO intervened in 1999 to halt Milosevic's violence.

For the foreseeable future, Western analysts warn, Kosovo's economy will remain dependent on foreign aid, its security on 16,000 NATO troops and its political affairs on a European Union mission that will shortly take over from the United Nations.

"It could take at least 10 years for Kosovo to stand on its own two feet," said Joost Lagendijk, who oversees policy on Kosovo in the European Parliament, which has approval power over any EU financing for Kosovo. "Kosovo is a poor agricultural country where the energy supply is chaotic, the rule of law needs to be upheld, and the economy is almost starting from scratch."

Residents are so desperate for cash that crunching old cars and selling scrap metal remains one of the few ways to scrape a living and Kosovo's biggest export. Infrastructure is creaky; unemployment is estimated by government officials at about 50 percent. Business owners complain that bribing officials can be necessary to obtain anything from basic health services to licenses for factories.

While independence has brought with it the expectation of economic deliverance for Kosovo's long-suffering ethnic Albanians, economists say those expectations demand careful management. "For years, we have used not having our independence as an excuse for everything," said Shpend Ahmeti, a former World Bank economist who runs the Institute for Advanced Studies, a Pristina-based research organization. "Now, that we have it, we need to show that we deserve to be a country and that we can create a viable economy."

For that, economists say, Kosovo needs to foster local industry; imports run at about $1.9 billion a year, but exports are a paltry $130 million. Success will depend partly on the gumption of entrepreneurs like Kuqi, the son of a farmer, who founded Ben-af in 1993, selling clothing from a kiosk in Suva Reka, a poor, industrial city in southern Kosovo that is his hometown. The business quickly grew. But during the 1998-99 war between ethnic Albanians and Serbs, his factories were set afire and he fled to Albania.

When Kuqi returned in 2000, he used savings to rebuild the business. Four years later, the police say, a jealous rival rammed a car through his flagship store. A bomb went off four hours later, destroying the store and causing €5 million worth of damage. Today, Ben-af has 13 stores and malls across Kosovo with annual sales of €30 million. Kuqi said harnessing a low-wage, ambitious work force was a key to success. "People here are willing to work hard."

Ahmet Shala, Kosovo's finance minister, dismissed doubts about economic prospects, pointing to success stories in neighboring countries like Slovenia, a former Yugoslav republic of similar population nestled next to prosperous Austria and Italy. Shala argued that Kosovo's economic potential resided in the energy of its young population, though he acknowledged this was also a challenge, because 25,000 people enter the workforce each year, many with limited skills and education.

He stressed that, until now, Kosovo's uncertain status had prevented it from having some of the tools of a functioning economy, ranging from barcodes for supermarket products to access to international railway networks. Independence, he argued, will allow Kosovo to enter key financial institutions like the World Bank and the International Monetary Fund, and that would help it to get a credit rating necessary to attract foreign investors. "Until now Kosovo was a baby in an incubator, with donors providing the oxygen," he said. "Now, the baby needs to learn how to breathe on its own."

In addition to Serbia, Russia and Spain, several other EU countries have refused to recognize Kosovo: Slovakia, Greece, Romania and Cyprus.

EU officials warn that partial recognition could deter investment, prevent Kosovo from accepting loans from international institutions, impede the Union from signing trade and cooperation deals and place limitations on the travel of Kosovars.

Kosovo also faces the threat of an economic embargo by Serbia, which, incensed by Kosovo's independence, could decide to cut it off.

"Serbia can hurt us by keeping us in the news," Ahmeti said. "We need to overcome our image problem."

Already, Serbian protesters have burned two UN border posts. Economists argue that a trade blockade by Serbia would hurt Serbia more than Kosovo, because Serbia exports €200 million worth of goods to Kosovo each year.

Kosovo must also wean itself from a culture of dependency. Propped up by €370 million in remittances from Kosovars living abroad, the country has also received nearly $3.8 billion in international financial aid since 1999. Ahmeti lamented that 80 cents of every dollar had been spent on a small army of consultants, who offer technical assistance on everything from building roads to training judges, even though "we have power cuts eight times a day" and little home-grown industry.

Many here are pinning hopes on Kosovo's untapped mineral wealth, including 14 billion tons of lignite coal reserves that will be harnessed to fuel a new 2,000-megawatt power plant due to be operational by 2012, if political infighting and bureaucracy over the bidding process do not further impede progress.

British geologists conducting a recent survey of resources in Kosovo say it has vast amounts of minerals, including deposits of nickel, lead, zinc, cadmium, bauxite and even small seams of gold. Yet the infrastructure for extracting minerals is outdated, and mining analysts say Kosovo's most important mining complex, Trepca, will need at least €200 million in outside investment to create a profitable exporting business.

On a recent day at Trepca, ravaged by war and mismanagement since its glory days under communism in Yugoslavia, miners wearing battery-lit hardhats descended to a labyrinthine world of hot and dark tunnels, widely rumored to have been used by Milosevic to hide the corpses of Albanians killed in war.

Dozens of workers drilled holes and inserted sticks of dynamite to dislodge lead and zinc deposits. "This could be the future of Kosovo," one miner, Xhafer Peci, said while holding glistening stones in his hands.

Yet Trepca has become a political issue because it is jointly run by ethnic Albanians and Serbs, with its mines and processing factories spread between the north of Kosovo, dominated by ethnic Serbs, and the south, dominated by ethnic Albanians. With Belgrade determined to control northern Kosovo, Trepca's future remains in doubt.

Nazmi Mikullovci, Trepca's director, who is of Albanian ancestry, said he hoped ethnic cooperation at the mine would continue. He stressed that geological surveys showed that 88 percent of Kosovo's mineral wealth lay in the south of the country; however, the mine has €300 million in unpaid debts and must also finance the pensions of several thousand ethnic Albanian workers fired when Milosevic took over the mine in the 1990s. "Trepca will not be the savior of Kosovo, at least for now," Mikullovci said.

Even with all of the challenges, there are a few brave investors. Ekrem Luka, the head of Dukagjini, a sprawling conglomerate that owns everything from breweries to a television station, said he plans to build a 23-story World Trade Center in downtown Pristina, complete with a 100-room hotel, three floors of shopping malls, and private apartments. "The business attraction of Kosovo is that we are starting at zero and need everything," he said. "Exporters, importers, retailers, you name it."