Kosovo, an independent state for the past 15 years, is still grappling with a lingering “war” in its northern region, divided by the Ibar River in the city of Mitrovica.

Tensions in the north have remained a constant source of concern. These tensions reached their peak on September 24 when armed groups attacked the Kosovo Police, resulting in the tragic death of a police officer.

In the subsequent exchange of fire, three attackers of Serbian nationality were killed. Kosovo promptly accused Serbia of being behind the attack, but Serbia vehemently denied any involvement. This persistent state of tension and unrest is taking a toll on Kosovo’s economy.

International investors are showing hesitation when it comes to channeling their capital into the region.

“The recent incident in north Kosovo may have prompted investors to postpone or rethink their investments,” states Lulzim Rafuna, President of the Economic Chamber of Kosovo.

He points out that north Kosovo’s turmoil is also negatively impacting other countries in the Balkans.

“Why does an event or tension in one country have an impact on the entire Balkans? It’s because we are small countries, and every investor views the Balkans as a single market with 17 million residents or consumers”.

Tensions have persisted in north Kosovo since the post-war period in 1999. Approximately 50,000 Serbs residing in the region refuse to recognize the institutions of Pristina and instead consider Belgrade as their capital.

The ongoing tensions in the north are a concern for every business and investor. Emrush Ujkani, CEO of the European Investors Council in Kosovo, explains that the issue of north Kosovo invariably dominates discussions whenever the possibility of foreign companies investing in Kosovo is raised. “The situation in the north serves as an obstacle for every citizen, let alone a potential investor considering expanding their capital”.

Ujkani points out that foreign investors have had reservations about Kosovo for many years. “Foreign investors have had reservations about Kosovo for the past 24 years. It is perpetually associated with images of conflict and war. Unfortunately, their perception further deteriorates with each incident of tension in the north”.

He further mentions that in every meeting with potential international investors, a significant amount of time is spent addressing the damage done to Kosovo’s image by the unrest in the north.

Agim Shahini, President of the Kosovo Business Alliance, reports that they have closely followed the situation created by the attack, which caused Kosovo a loss of 20 million euros in domestic circulation.

“Seven days after the terrorist attack, it had economic consequences on Kosovo. It frightened both citizens and foreign investors. Overall consumption dropped by 4%. Businesses reduced their activities by up to 10%. Family and tourist visits dropped by up to 50%. Sales in the real estate sector, housing, and restaurants dropped by 50%. Interest in foreign investments in Kosovo dropped to 0% during the week of September 24-30”.

Mustafë Kadriaj, an economics expert, suggests that Serbia’s objective is to economically damage Kosovo.

“It is essential to evaluate the situation from an economic perspective. While political interests have their pros and cons, the long-term outcome is that economic interests are being compromised. Since the war, the economy has remained in the shadow, and even Serbia’s aim is to inflict economic harm on Kosovo”.

The decline in foreign direct investments is evident

Arian Zeka, Executive Director of the American Chamber of Commerce in Kosovo, acknowledges that the decline in foreign direct investments in Kosovo is inevitable. He attributes this to the perception that the country lacks stability.

“We have observed a decrease in foreign direct investments. It is undoubtedly necessary to conduct further research to conclude if there is a connection between the political situation, tensions, and the potential to attract foreign direct investments. However, it is taking place. The American Chamber of Commerce in Kosovo has consistently warned about this. Although we are an Economic Chamber, we have issued three or four statements emphasizing the need to achieve a comprehensive agreement to normalize relations between Kosovo and Serbia. In this respect, it’s about achieving economic normalization between Kosovo and Serbia”.

Zeka also mentions the efforts undertaken by the Government of Kosovo to attract foreign investors, but he believes it is not sufficient.

“It is never enough. What the current Government is doing, and I want to be objective, is that it has made significant efforts to combat corruption, organized crime, and strengthen the rule of law throughout the territory of the Republic of Kosovo. However, it appears that our efforts, those of the current Government, all the efforts of past governments, are not producing positive results because of the ongoing problems we have with our neighbors, primarily Serbia”.

Investments in Kosovo over 15 years

Over the last 15 years, the value of Foreign Direct Investments in Kosovo has surpassed 4.5 billion euros. Real estate stands out as the sector with the highest participation in Foreign Direct Investments, closely followed by the financial and insurance sector.

According to data from the Central Bank of Kosovo, since 2008, when Kosovo declared its independence, the value of Foreign Direct Investments has reached nearly 5 billion euros.

Investments have primarily focused on the real estate sector, followed by the financial and insurance sector. The majority of these investments are credited to the Kosovo diaspora.

The Kosovo Agency of Statistics reports that in 2022, there were 11,024 registered enterprises in the country.

Only 49 of these were registered as foreign companies.

These foreign companies are generally small, with fewer than ten employees. In the first quarter of this year, the number of registered foreign companies increased to 16.

The situation in the north has also had ramifications for Kosovo’s economy, as the European Union imposed punitive measures on the country at the end of June.

This was in response to the Government of Kosovo’s alleged failure, according to the international community, to meet its demands for de-escalating the situation in the north.

These measures include suspending funding programs for Kosovo, including those from the Instruments for Pre-accession Assistance (IPA) to the EU and the Western Balkans Investment Framework (WBIF).