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A Fragile Country Tale: Restrictions, Trade Deficits, and Aid Dependence

Massimiliano Calì's picture

 Masaru Goto, World BankPart of the World Bank’s new vision is to step up its efforts to help fragile and conflict-afflicted states break the vicious cycle of poverty. But this is no easy task.
 
The destruction of productive assets and the restrictions on the capacity to produce are among the most severe economic impacts of conflicts and fragility. These effects explain why countries in conflict or emerging out of conflict typically have very large trade deficits. The productive sector is often particularly weak by international standards, so exports are low and domestic consumption has to rely on imports. Indeed, five of the ten countries with the largest trade deficit in the world (Timor-Leste, Liberia, the Palestinian territories, Kosovo and Haiti) are considered fragile by the World Bank and other regional development banks (figure 1).
 

Overcoming the Middle Income Trap

Wolfgang Fengler's picture

The Western Balkans Case

ZM-SE003 World Bank The Western Balkans have a lot going for them: ideal location next to the world’s largest economic bloc, a well-educated workforce, relatively low wages and decent infrastructure. FDI and investors should be rushing in … but are they?

Southeast Europe is the next frontier of EU expansion and includes six countries: Albania, Bosnia & Herzegovina, Kosovo, Macedonia, Montenegro and Serbia. These countries have a lot in common and an equal amount of differences. They are all relatively small open economies, with a growth strategy premised on deeper international integration. Some, especially Macedonia, are more advanced in attracting international investors but as a whole, the region seems to be stuck in a classical Middle Income Trap: they are too rich to compete on low-cost manufacturing but are too poor to be global innovators. After a strong recovery following war and conflicts in the 1990s, the growth momentum has stalled over the last five years and the region has been particularly vulnerable to external shocks.

Why Women Don't Work in the Western Balkans

Ellen Goldstein's picture
Finding and keeping a job, and even participating in the labor market, is harder if you are a woman than if you are a man living in the Western Balkans. This is a conclusion I can draw from my first year as Country Director for the Western Balkans, reminding us that gender inequality persists in many forms while another International Women’s Day passes. 

Only half of the working age population participates in the labor force in the Western Balkans. This is low by both European and global standards - but participation among women is even worse. This rate was only about 42% in Bosnia and Herzegovina, and a mere 18% in Kosovo in 2012 - the lowest in all of Europe and Central Asia. This participation gap persists throughout a woman’s life, contributing to low employment rates, and widens during child bearing years. In Bosnia and Herzegovina, the gap between male and female employment rates has reached a whopping 44 percentage points for those aged 25 to 49 years with a young child living at home.

Failure to address these labor market inequalities is a missed opportunity for faster economic growth, poverty reduction and increased shared prosperity in a region struggling to recover from the neighborhood effects of the Eurozone crisis.

Notes From the Field: Working in the Western Balkans

Kaori Niina's picture

Belgrade, Serbia at dusk. Source - Adrien_DubuissonEditor's Note: "Notes From the Field" is an occasional feature where we let World Bank professionals conducting interesting trade-related projects around the globe explain some of the challenges and triumphs of their day-to-day work. The views expressed here are personal and should not be attributed to the World Bank. All interviews have been edited for clarity.

The interview below was conducted with Violane Konar-Leacy, an Operations Officer in the World Bank Group’s International Finance Corporation. She works for the Investment Climate group, and is based in Belgrade, Serbia. Ms. Konar-Leacy is currently managing a trade logistics project in the Western Balkans. She spoke with us about her personal connection with the region, and how she embraces the challenges of working in a politically complex environment.

Meet the Innovators: Tech Entrepreneurs Forge a New Future for the Western Balkans

The countries of the Western Balkans – which include the states of the former Yugoslavia, along with Albania – are not exactly world-famous for their entrepreneurial spirit. Yet if you look at their societies more carefully, you’ll soon find a surprising number of new companies dotted throughout the Western Balkans. They’re already setting their sights beyond smaller domestic markets: They’re looking to Europe, and the world.

Western Balkans: Through Science, Innovation and Collaboration, a Program for Shared Prosperity

Paulo Correa's picture


 

You’d probably be skeptical if I told you that the Western Balkans – a region that has long suffered from social and ethnic fragmentation – now has a strong opportunity to boost shared prosperity by promoting research, innovation and entrepreneurship. Your views might not even change if I showed you that such idea is validated by preliminary studies linking research and innovation to the performance of firms and countries in the region.

You might be surprised – yet your initial assumption might be unchanged – if I told you about the kind of companies that are starting to build a different economic landscape in the region: firms like UXPassion, Pet Minuta, Strawberry Energy or Teleskin, which are all technology-based startups created by young researchers who became entrepreneurs. Click on this link (http://www.worldbank.org/en/news/video/2013/10/22/western-balkans-research-and-development-for-innovation), or on the video embedded below, to meet them and other innovators from the Western Balkans.

Indeed, the transition to a market economy and the breakup of the former Yugoslavia starting in 1991 had a severe impact on the research and innovation sector in the Western Balkans. Research capacity narrowed significantly, and R&D’s links to the productive sector of the economy disappeared. The new industrial structure has naturally a lower propensity to invest in research while the current business environment promises low returns to the enterprise investments in innovation. Efforts to revamp the region's research and innovation sector were most of the time short-lived.

As a result, the performance of the research and innovation sector in the Western Balkans is gloomy. The region’s current investment in R&D are roughly the same amount as the investment by just the second-largest university in the United States. (In 2012, for example, only 38 patents from the region were registered with the U.S. Patent and Trade Office – compared to the average of 27 patents registered by each American university.) At the same time, very little of those investments are efficiently transformed into wealth. For example, for each invention that received a patent, the region spent, on average, three times more in R&D resources than does the United States.

Building on a continuing series of efforts to reform their national innovation systems, in the hope of changing their gloomy prospects, the Western Balkan countries in 2009 committed to develop a joint regional research and innovation strategy. That strategy, developed between 2011 and 2013, was formally endorsed last month by the ministers responsible for science and education from Albania, Bosnia-Herzegovina, Croatia, Kosovo, the Former Yugoslav Republic of Macedonia, Montenegro, and Serbia. The preparation of the strategy, which benefited from technical assistance by the World Bank and from the financial support of the European Commission, involved representatives from the region’s leading universities, research institutes, private sector firms and government agencies. Discussions of the draft proposal were pursued in all seven countries as part of a large outreach exercise.

The Beauty of Numbers

Wolfgang Fengler's picture

One of my first assignments in the World Bank, some 13 years ago, was in a small and complicated country, better known for coups and mercenaries than for statistical capacity. Before I set off to the Comoro Islands, my then manager (now an established World Bank Vice-president) gave me the following priceless advice: “When you get there, make sure to get a lot of data. It may be difficult to get and sometimes even flawed, but data has one great advantage: It cuts through a lot of crap.”  

Accounting chartsNumbers are indeed beautiful. They can help bring clarity to our lives and save us time as well as resources. But raw data can be messy and you also need a good system for deciding which numbers to use and how to interpret them. Last week’s launch of the 2014 Doing Business rankings reminded me of the advice my then boss had given me. Doing Business started from the premise that companies are the backbone of any economy but that investors often lacked knowledge of the conditions in “frontier economies”. With the benefit of an annual assessment of the business environment in each country, investors could make more informed decisions. As for policy makers, they could more easily attract investors, provided they made a genuine effort in cutting red tape and supporting businesses.

Roma Inclusion: An Agenda for Action

Maria Davalos's picture
A Roma family in Macedonia prepares coffee during a black out
The Roma make up Europe’s largest and poorest ethnic group, with three-quarters of their estimated 10 to 12 million people living in poverty, and fewer than one in three having a job. The Roma are also much younger than the general population, with 30 percent under age 15-which can be a real boon, considering the latest demographic trends. But a Roma child’s chance at a good life starts to decrease very early.  

A recent regional study that focused on Roma and non-Roma in nearby communities from five Eastern European countries finds between 28 and 45 percent of Roma children attend preschool in four of the five study countries. However, the Roma preschool rate jumps to 76 percent in Hungary, where targeted policies have been in place; and this is about the average for non-Roma preschool rates across the five countries. Hungary’s experience offers promise because surveys show that preschool matters greatly to completing secondary school and staying off social assistance.

South East Europe Six: Growth, please!

Željko Bogetic's picture

Just six months ago, in the previous South East Europe Regular Economic Report (SEE RER) covering the six Western Balkan countries of Albania, Bosnia and Herzegovina, Kosovo, FYR Macedonia, Montenegro, and Serbia (SEE6), we looked at the double-dip recession in this region, and structural policies needed for recovery.
 
Now, we are happy to report that recovery is, indeed, under way in each of these countries. In 2013, the SEE6 region is projected to grow 1.7 percent, thus ending the double-dip recession of 2012. Electricity, agriculture, and even some exports are helping with this rebound of output. Kosovo is leading the pack with a growth rate of 3.1 percent, with Serbia (which accounts for nearly half of the region’s GDP) expected to grow by 2 percent on the heels of increased FDI, exports, and a return to normal agricultural crops. (In 2012, by contrast, agricultural output in Serbia dropped 20 percent on account of a severe drought). Albania, FYR Macedonia, and Montenegro are all expected to grow by between 1.2-1.6 percent. Rounding out this group is Bosnia and Herzegovina – with expected growth of 0.5 percent.
 
So, are things finally looking up in the Balkans? Not exactly.

Figure 1: SEE6 Unemployment Rates, 2012



Source: LFS data and ILO. Kosovo’s tentative data suggest unemployment as high as 35 percent.

Women in the Workforce – a Growing Need in Emerging Europe and Central Asia

Sarosh Sattar's picture

Emerging Europe and Central Asia (ECA) is an interesting region because what you expect is not always what exists. Since this is written in honor of International Women's Day, discussing women’s labor market participation seems appropriate. The standard indicator used for this is the “female labor force participation” (LFP) rate, which is the proportion of all women between 15-64 years who either work or are looking for work. 

Since much of the region has a common socialist legacy, you would expect to see similar labor market behavior among women. However, the proportion of women who work ranges from a low of 42 percent in Bosnia and Herzegovina to 74 percent of adult women in Kazakhstan. And it wasn’t 20 years of social and economic transition that led to this divergence. Even in 1990, the range was about the same. The exception was Moldova which saw a 26 percentage point decline.


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