“The economy rests on contracts, but it is sustained by trust”
The lack of trust between Serbia and Kosovo is not only a political problem, but also a serious obstacle to economic cooperation and development.
Despite a difficult political legacy from the 1990s, Serbia and Kosovo have had a vibrant trade exchange since the beginning of the 21st century, and in the last full calendar year, 2017, it amounted to between 480 and 490 million euros. Serbia had a huge surplus, as imports from Serbia to Kosovo amounted to around 450 million euros, while exports from Kosovo to Serbia were significantly lower, at only 25-40 million. After the introduction of the 100% tax by the Kosovo government in response to several political disputes, and primarily due to Serbia's campaign against Kosovo's membership in international institutions, in November 2018, this economic balance was drastically changed, so that imports of goods from Serbia into the Kosovo market during 2019 fell to just 6 million euros.
This is a drastic example, showing how political disagreements and the economic measures that result from them can destroy trade and change the economic structure, leaving consequences primarily for producers and distributors, and then for consumers on both sides.
To make matters worse for the economy, it is an unwritten rule that once restrictive economic measures are introduced, they are difficult to repeal because, aside from the disagreements and disputes that caused them to be introduced, they are accompanied by new political implications and demands that complicate their eventual repeal. Therefore, such measures further and multiply complicate both the economic and political situation. The second unwritten rule relates to the boom in the shadow economy, which is fostered by such a situation, confirming the old rule that crime knows no borders and criminals always find a way to cooperate.
Sustainable economic cooperation requires predictability and a minimum of mutual trust, regardless of the durability of political disputes. It has long been clear that the Serbian regime, embodied in the autocrat Vučić, is not interested in building trust, because his method of governance relies on conflicts in the region. Economic logic plays no role here; instead, economic losses are offset primarily by Chinese loans, which will cost Serbia dearly in the long run, and he views economic cooperation as a way to appease criminals loyal to him from northern Kosovo, whether through legal or gray economic channels.
Both societies, Serbian and Kosovan, are paying a high price for mutual distrust. That price is measured in lost investments and missed development opportunities, while other countries in the region are attracting investments and taking over a part of the market.
Author: Dejan Novaković