The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses.  The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption.  The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.

Executive Summary

The Kosovan economy has shown considerable resilience in the wake of the shocks arising from the pandemic and rapid increases in commodity prices. After contracting more than 5 percent in 2020, Kosovo’s economy grew between by 7.1 and 7.5 percent in 2021 based on World Bank and International Monetary Fund (IMF) estimates, thanks to reduction in COVID-19 travel restrictions, diaspora inflows and increased local demand. According to the IMF, economic activity is forecast to grow at 3.8 percent in 2023, driven partially by the strong economic momentum of 2022. Foreign Direct Investment (FDI) remains limited while diaspora remittances (representing 14 percent of GDP in 2022) continue to be the country’s main economic driver, underscoring the need for Kosovo to diversify sources of economic growth.

Kosovo’s potential to attract increased FDI is constrained by numerous structural issues, including limited regional and global economic integration; political interference in the economy and judiciary; an unreliable energy supply; a large informal sector; difficulty establishing property rights; corruption; and tenuous rule of law, including a lack of contract enforcement. The country’s ability to sustain growth relies significantly on international financial support and remittances. Kosovo’s ongoing dispute with Serbia and lack of formal recognition by many countries and international organizations, including the United Nations, also hinders investment and creates obstacles to doing business.

In 2022, the net flow of FDI in Kosovo was estimated at $836 million, a significant increase over the 2021 amount of $466 million. Real estate and leasing activities are the largest beneficiaries of FDI, followed by financial services and energy. The food, IT, infrastructure, and energy sectors are growing and are likely to attract additional FDI. One key sector of the economy that has sustained strong growth is the wood processing sector.

Kosovo’s laws and regulations are consistent with international benchmarks for supporting and protecting investment, though enforcement remains weak. Kosovo has a flat corporate income tax of 10 percent. With USAID assistance, Kosovo established a Commercial Court in August 2022, which aims to handle business disputes fairly, efficiently, and predictably and is expected to improve the business enabling environment by reducing opportunities for corruption and building investor and private sector trust in the judiciary. In its first year of operation the court has already demonstrated success with businesses cases resolved more efficiently and transparently manner.  All legal, regulatory, and accounting systems in Kosovo are modeled on EU standards and international best practices. All large companies are required to comply with international accounting standards. Investors should note that despite regulatory requirements for public consultation and the establishment of an online platform for public comments (https://konsultimet.rks-gov.net/), some business groups complain that regulations are passed with little substantive discussion or stakeholder input.

Despite the challenges, Kosovo has attracted significant investors, including several international firms and U.S. franchises. Some investors are attracted by Kosovo’s young population, low labor costs, proximity to the EU market, and natural resources. Global supply disruptions brought on by the COVID-19 pandemic have sparked greater interest from some businesses to use Kosovo as a base for near-shoring production destined for the EU market. Kosovo does provide preferential access for products to enter the EU market through a Stabilization and Association Agreement (SAA).