The Republic of Kosovo is Europe’s youngest country and one of its poorest. The COVID-19 pandemic hit Kosovo hard, but the country recovered quickly.  Although economic growth estimates for 2021 differ slightly between the Kosovo Agency of Statistics’ 10.5 percent estimate and the International Monetary Fund’s (IMF) 9.5 percent estimate, both point to a robust economic recovery and faster growth rates than initially forecast.  Kosovo entered the pandemic with a robust financial system and sufficient liquidity in government coffers, Increased energy prices throughout Europe, particularly in the last quarter of 2021 through the first quarter of 2022, exposed Kosovo’s vulnerability to energy price shocks and serious issues with energy reliability.  By January 2022, the Kosovo government subsidized the energy sector in the amount of €90 million (about 1.3 percent of GDP) and increased energy tariffs to cover the cost of increased energy imports. As of July 2022, Kosovo’s financial system and government finances remained robust and resilient.  Kosovo’s economy is largely dependent on its diaspora. In addition to remittances, which constitute more than 15 percent of GDP, Kosovo’s economy also benefits greatly from diaspora tourism in the summer months.

According to Kosovo Customs, Kosovo’s main trade partners are the EU countries (approximately 44 percent of imports and 30 percent of exports) and its Western Balkans neighbors, with which Kosovo trades tariff-free under the terms of the Central European Free Trade Agreement (CEFTA). CEFTA countries are the source of approximately 19 percent of imports, and the destination for 38 percent of exports. Kosovo continues to post a large trade deficit, with exports covering only about 15.3 percent of imports.

Kosovo’s high official unemployment, estimated by the Kosovo Statistics Agency as 25.9 percent in 2020, is a symptom of the difficult business environment and a perennial political concern. The difficult labor market conditions affect youth and women disproportionately and risk undermining the country’s social fabric. A large informal economy exists which may not always be captured in official data, particularly in the agriculture sector.

Despite these challenges, Kosovo’s relatively young population, with over 50% being under the age of 25, English language capacity, low labor costs, and abundant natural resources have attracted several significant investments, and several international firms and franchises are present in the market.

The Central Bank of Kosovo reports 2021 Foreign Direct Investment (FDI) at €415.2 million, an increase from €341.7 million in 2020. Germany, which brought €123 million to the country in 2021, was the largest investor in Kosovo. U.S. investment more than doubled, totaling €63 million in 2021. Some beneficial characteristics of the market include:

• Kosovo’s liberal trade regime, which enables duty-free exports for the majority of Kosovo goods to the EU market. The Stabilization and Association Agreement (SAA) with the EU has further reinforced trade liberalization and removed many of the remaining trade and tariff barriers.

• Kosovo’s location in the heart of the Balkans offers easy access to neighboring markets and CEFTA members, a market of approximately 28 million people.

• Kosovo’s infrastructure has steadily improved in recent years, including the completion of a modern highway to Albania and a second highway to North Macedonia. The number of passengers who passed through Pristina International Airport in 2021 increased by 50 percent to 2.2 million from the disruptions caused by COVID-19. The airport authority is currently extending the runway and upgrading the landing systems, which should lower flight cancellations in the winter months and accommodate larger planes.

• Kosovo’s young workforce is largely multilingual (often speaking English and/or German).

• Kosovo labor costs and tax policies are competitive. The Kosovo Statistics Agency reports that Kosovo’s average pre-tax monthly salary for public and private sector workers is €484; the private sector-only average is €419. These wages are amongst the lowest in Europe, and the current tax regime is business-friendly with a flat 10 percent corporate income tax.

• Kosovo bills itself as “the most pro-American country on Earth,” with American businesses viewed highly by the public and Kosovo consumers welcoming American goods.

• As a member of the EU-funded Western Balkans 6 (WB6) core transportation network, which aims at improving regional connectivity, Kosovo plans to revitalize key highways and railway lines for both domestic transport and connections with neighboring countries, including via an EBRD-supported modernization project to connect Kosovo and Serbia by rail.

• In 2022 the Kosovo Assembly adopted a law to establish a Commercial Court, which is expected to efficiently, predictably, and fairly adjudicate business disputes.