Stabilizing Kosovo: Enterprise Formation and Financial Markets

Henry H. Perritt, Jr.[1]



In the aftermath of war

The conclusion of the NATO bombing campaign in June, 1999 ended ten years of political and economic subjugation of Kosovar Albanians by Serbs, encouraged by Yugoslav Dictator Slobodan Milosevic.  Freed—mostly—to organize the institutions of the civil society and to engage in the full range of occupations and businesses, the Kosovar Albanian community has shown remarkable entrepreneurial energy.

Kosovo can experience significant economic growth through a market economy, despite continued legal and political uncertainty.  In order for this to happen, investors must overcome the myth that nothing good is possible in the Balkans because of "ancient ethnic hatreds," the UN Mission in Kosovo ("UNMIK") must move more quickly to allow economic decisions to be made by indigenous Kosovar institutions, especially business enterprises, and the United States government and the world community must provide stronger support for the development of key capital market institutions and enterprise formation intermediaries such as the Kosovar Chamber of Commerce.

Relationship of economic and political development

Kosovo cannot survive politically unless it is economically viable. For the time being the UN and NATO can provide resources for rebuilding and – along with hundreds of NGOs – jobs and good salaries. But this cannot be a permanent arrangement. Eventually other crises will compete for resources now devoted to the Balkans and domestic politics elsewhere will cause the UN and NATO to reduce their commitments to Kosovo.

Kosovo will have to stand on its own economically, in an environment very different from that of the former Yugoslavia. In Kosovo, Bosnia, Gaza and the West Bank, and elsewhere, the UN and the World Bank are recognizing that stable peace in the wake of intra-national ethnic conflict requires economic progress, and that private capital is the sine qua non of successful sustained economic development.

The Stability Pact for South Eastern Europe[2] sets as a goal the creation of “vibrant market economies based on …diversified ownership, including privatization.”[3] It welcomes the progress by the World Bank working through the European Union to establish a donor coordination process,[4] and assigns the “working table on economic reconstruction” with promoting private sector business, among other things.[5]

UNMIK’s Department of Reconstruction (Pillar IV/"EU Pillar") has established a Department of Trade and Industry ("DTI") to provide "a freely competitive environment in which business can flourish with the minimum of interference from central and local government . . . by introducing a transparent and enforceable regulatory framework; facilitating and encouraging the development of the private sector by means of targeted SME programs and credit facilities; and a swift process of commercialization of non-private sector enterprises, through which economic operations can be resumed without prejudice to the eventual resolution of property ownership disputes."[6]  The key objective, says the report, is to remove as much of the productive economy as possible from direct control by either central or local government."[7]

Creating acceptable conditions for private investment has thus become an essential part of nationbuilding. But investment and private sector engagement cannot simply wait for a comprehensive rule of law and market-oriented political institutions to be established. Nothing will ever be fixed if the private sector waits for everything to be fixed before economic development begins. Instead, economic development must be integrated with building a rule of law, and both must proceed in tandem.

In some respects, the conditions for nationbuilding in Kosovo are favorable. Most significantly, the UN has a broad and strong mandate under SCR 1244 to do whatever is appropriate in its civil administration role, not only to preserve peace and protect human rights, but also to support economic development. To the extent that legal change or institutional reconfiguration is necessary in pursuit of these goals, the UN Mission in Kosovo (“UNMIK”) has sufficient lawmaking and executive authority to effect the changes.

Additionally, emerging political parties in Kosova, participating in the Interim Administrative Council, represent a political evolution. Former KLA fighters are proving their effectiveness in operating as a loyal and peaceful opposition, even before clarification of legal or political mandates for local government.

Considerable progress can be made now if U.S. universities and foundations work with Kosovar Diaspora leaders and Kosovar political leadership to create pragmatic capital market institutions to stimulate enterprise formation in the small and medium enterprise sectors in Kosovo.

Economic Assets & Liabilities

The Yugoslav legacy is not a generous one; Kosovo was never a particularly prosperous part of the former Yugoslavia, despite its mineral resources and its generation of surplus energy.  Socialism focused on job creation and organized economic enterprises to provide for social welfare benefits; not to compete effectively in open markets. The concept of "social ownership" clouds ownership issues, resulting in a relatively small number of registered private enterprises mainly active in trading and services.[8]  A substantial part of economic activity takes place in the "parallel economy."[9]

But Kosovo is not without advantages.  It has – for now – the attention of the World Community and a commitment by Western Europe and America.  It has mineral resources.  Most important, it has unusual human resources: a well-educated, literate and resourceful population with an entrepreneurial spirit – and ten years experience in organizing and maintaining the institutions of a civil society, despite prohibitions and brutal harassment by the Milosevic regime. UNMIK Pillar IV notes these major advantages facilitating economic development through private investment:  "a young population, an entrepreneurial culture, the potential for high levels of productivity combined with relatively low labor costs."[10]  Kosovo also has a Diaspora, nearly a million strong, economically successful and politically active in strategic states like Germany and the U.S. The Diaspora was willing, before the war, to invest more than a billion dollars in the future of Kosovo. Now it has expertise, commitment, and financial resources that can help secure that future economically.

Sources of capital

Four possible sources of capital exist: (1) public sector sources organized by through the Stability Pact for South Eastern Europe, by the European Bank for Reconstruction and Development (“EBRD”) or the World Bank; (2) private foreign investors with no particular past connection to Kosovo; (3) current citizens of Kosova and (4) the Albanian Diaspora.  The willingness of the any category of investor to invest in Kosovo depends upon the existence of projects and associated business plans that promise a payback within a reasonable time frame and political risk insurance.  The first and fourth sources may be less insistent on clear assurances of a return or protection against political risk, because they have policy-oriented or philanthropic motivations in addition to economic ones.

Kosova needs to take advantage of its present prosperity, driven by foreign IGO and NGO spending and Kosovars with good paying jobs with these organizations, to build a healthy economic structure. Kosovars are saving some of what they were getting from the current prosperity, but they “save it in socks” rather than putting in the bank, because they have learned not to trust banks.  Some Kosovar leaders have been trying to convince people to take the money and invest it now in productive enterprise; not just in building new houses for their families.  They don't need to put it in the bank first; they just need to take it out of the sock and invest it with entrepreneurs. Many of the same capital market elements useful to couple foreign investment with opportunities in Kosovo can also be helpful in capturing domestic savings.

Diaspora capital may or may not be an important source of financing for the future.  By one estimate, the Albanian Diaspora contributed one billion dollars annually for ten years through the "two-percent fund" during the period of occupation and a war. The 30% of the Diaspora who are willing to support the KLA already contributed everything they have and do not have many remaining assets to invest.  The other 70% who had supported Rugova and who were nervous about the KLA rocking the boat have funds remaining but may be harder to convince to make investments.  The Kosovar Albanian Diaspora numbers about 600,000.  Of these only about 200,000 are primary wage earners, and they have the capacity to contribute $2-$3,000 a year each.  That would result in a total investment potential of about $600 million per year.  If the same amount can be mobilized as investment capital for SMEs now, that represents a substantial source of capital. 

The problem is effective intermediation.  How do entrepreneurs apply for capital -- or to put to the idea more in private sector terms, how to they raise angel and venture capital and then make an initial public offering? How do investors know about particular enterprises they might want to invest in? And how do they evaluate the quality of the opportunity and then enter into suitable legal arrangements protecting security of the capital?

Human Capital

Any viable program of economic development for Kosovo must include mechanisms for harnessing technical expertise, including entrepreneurship training, assistance in establishing business plans, marketing and distribution systems, legal frameworks for investment and supply contracts, and design of provisions to secure investment through political risk insurance, collateral, letters of credit, and reorganization of failed enterprises. The necessary expertise is available from technical assistance organized through the international community, through the Kosova Chamber of Commerce, from private-sector investors and from the Diaspora.

Human capital is one of Kosovo's assets.  But any sound strategy for economic development must ensure that certain types of human capital are available immediately:  executives and managers for a market-economy, and people with technical skills to provide services such as information technology services demanded in global markets.

Ultimately, assuring a supply of these types of human resources is the responsibility of local school and university systems.  In the short term, a variety of exchange and mentoring programs are appropriate to "jump start" the provision of appropriate human capital.  Exchange programs can bring American professors to Pristina, and send Kosovar professors to the United States. The Pristina economics faculty and American business schools can organize mentoring of Kosovar faculty by American faculty. American-style rather than European-style education in the business management field is appropriate.  Short courses in Pristina in post graduate business education also are desirable.  American faculty would give lectures in English in Kosova.

Elements of an economic strategy

Building on the assets, and overcoming the obstacles, require formulation and execution of a sound economic strategy, one that builds good jobs for the long term through enterprises that can compete in World markets and attract the necessary private capital to maintain their competitiveness and to grow.

Conceptually, an economic development strategy contains two major elements: (1) defining the focal points of economic development, and (2) defining and building capital market mechanisms necessary to aggregate capital and channel it to firms.  Kosovo needs a pragmatic; not a theoretical approach. From a theoretical standpoint, law and development theory has waxed and waned.[11]  Early, macro law and development theorists focused on development of Western-style legal institutions, mainly ignoring the roles of ethnicity and culture.  Later, micro-, theorists focused on ethno-economic inequities and emphasized empowering the rural poor and allowing them to participate in identifying problems, setting priorities, and carrying out project activities.[12]  Micro development practitioners emphasize human rights, land reform, environmental and natural resources, legal literacy, legal services, gender law, labor law, consumer law, and housing and tenant law.[13]

Focal points: the three sectors

Understanding the economic development and reconstruction challenge in post-war Kosovo requires considering three distinct sectors of the economy:

1.     Large, infrastructure-oriented enterprises, where UNMIK and the European reconstruction authorities will be in the driver's seat in mobilizing investment capital. These include

(a) State activities performing public functions.   Developing this subsector primarily involves questions of public finance and political legitimacy.

(b) State owned infrastructure facilities.  Developing this subsector involves a mixture of public finance, privatization, and commercial law, and also depends upon mobilizing sources of investment capital from international sources such as the World Bank.

 (c) Large socially owned enterprises.  Developing this sector primarily involves questions of privatization, property law, and commercial and company law.  Because of the controversies over property ownership, development of this sector will involve negotiations and agreements among the U.N., the World Bank, the Transition Administration of Kosova and foreign owners of property. 

2.     Medium scale enterprises, requiring capital from $100,000 to $5 million, where the real need is to organize a kind of investment banking function and rating agencies. This sector overlaps the socially owned enterprise subsector, but it also includes entirely new businesses. Brick factories, construction firms, and automobile and farm-equipment dealerships  occupy this sector.

3.     Small/micro enterprises in purely private ownership, requiring capital of less than $100,000, where the task is to evaluate and improve on the Micro Enterprise Bank ("MEB").. Gas stations and restaurants fall into this category.[14]

Developing the second and third sectors involves making a reality of the ideas for mobilizing private capital, and offers the best prospect for proceeding independently of UN action, and creating productive jobs quickly.


There is strong political pressure to give priority to agriculture and the reopening of heavy industry in order to create the maximum number of jobs.  The main problem with this strategy is that both agriculture and heavy industry in Kosovo are inefficient and cannot compete effectively in world markets.

It would be a mistake simply to restart old socialist enterprises that, for the most part, were started for political rather than economic reasons.  Political pressures are strong to do just that because people want their old jobs back, but – as one knowledgeable observer put it -- most of the old plants simply should be dynamited and only those than can justify their existence in terms of hardheaded market assessment should receive investment. There may, however, be arguments for developing certain agricultural and certain heavy industry facilities so that Kosovo can become self sufficient in certain food stocks and building materials, which are in heavy demand, as war damage is repaired. Even here however, care must be taken not to rebuild along old socialist lines, but to pay attention to the role of private Kosovar enterprise in meeting the needs of farmers and of construction.

A sounder strategy would make sure that other sectors of the economy develop in order to absorb excess employment from the heavy industry sector.  In that way, development can proceed without the political difficulty of restarting inefficient state-owned facilities and then subsequently having to shut them down or to lay off substantial parts of the work force who cannot find other jobs, in order to make the enterprises efficient and privatizable. This means a strong emphasis, from the beginning, on small and medium enterprise (“SME”) development.

Small and medium enterprise (“SME”) development is an attractive priority. It takes advantage of the entrepreneurial energy of the Kosovars. Legal problems of state and social ownership are few – or absent altogether, in the case of start up enterprises. Many bureaucratic barriers associated with UN and World Bank involvement are minimized, and the legal reform requirements are modest.

The entrepreneurial medium enterprise sector is an engine of job creation and immediate economic progress.  It may be relatively easy to identify good projects and help people put together business plans.

But the microenterprise capital market institutions are inadequate to meet the capital requirements of this sector. Larger bundles of capital must be identified and interested in projects that themselves are plausible in terms of long-term viability. The opportunities for this sector are great, but the work to be done also is great, in terms of building capital market institutions, matching investors or lenders with entrepreneurs, and providing investors and lenders with reasonable assurances in a legal environment that will remain uncertain for the foreseeable future. 

In addition, entrepreneurs must be persuaded to take the risk of actually providing goods and services rather than simply trading goods and services originating outside Kosovo.

Brickmaking represents a good example of an opportunity in the middle sector.  Some 40,000 houses are now being rebuilt in Kosova, part of the 128,000,000 estimated as having been destroyed during the war.  Each house requires some 5,000 bricks.  Bricks sell for about 1 Deutschmark each in Kosova.  That represents a 20,000,000 Deutschmark opportunity for an indigenous brick making industry.  A brick factory requires an investment of some two to four million Deutschmarks.  The raw material is abundant and scattered throughout Kosova, and investors could get all their money back within two to three years.  Yet so far, Kosovar entrepreneurs would prefer to trade than to manufacture.  One entrepreneur in particular buys bricks for 22 Pfennigs in Thessalonica, Greece, and sells them for 35 Pfennigs.  The 65 Pfennigs remainder of the 1 Deutschmark price represent value added in Kosovo by various intermediaries.  One of the barriers to economic development is that entrepreneurs prefer the low risk, low capital trading activities to manufacturing activities.

The small enterprise sector is a success story – at least in the cities. Gasoline stations and restaurants have sprung up on every block. The Micro Enterprise Bank, under Regulation 1999-13, channels capital to these enterprises.  At least some microenterprise intermediaries have shown great energy and leadership. The immediate need is to assess the operation of Regulation 13, and to determine what aspects of the capital markets it encourages have functioned well, and where changes are needed.

In addition, it is important to understand the degree to which these enterprises are depending on spending by international personnel, and the degree to which this sector would be threatened by having to rely mainly on spending by the Kosovar population.[15]

Legal uncertainty

Legal uncertainty is a significant psychological barrier to economic development in Kosovo. The explicit reference in the preamble to SCR 1244 to the continued sovereignty of the Federal Republic of Yugoslavia (“FRY”) over Kosovo creates fears that property interests associated with private investment in Kosovo will revert to FRY within a matter of years, with unpredictable -–but surely negative – consequences for investors.

The predominance of state ownership of existing major enterprises and of crucial infrastructure, complicated by controversies over the 1989 alteration of traditional “social ownership” of many enterprises, make it even more difficult to attract private investors until some degree of privatization takes place.

Continuation of FRY sovereignty and deferral of a comprehensive political settlement do not prevent the exercise of necessary governmental authority to establish necessary legal reforms and economic development supported by private investment. While SCR 1244 acknowledges FRY sovereignty, it also grants plenary powers of “civil administration” to the UN. It also explicitly authorizes the UN to transfer these powers to local provisional authorities and ultimately to institutions created or provided for in the eventual political settlement.

UNMIK should be understood as a trustee-occupant of Kosovo, exercising most of the important attributes of sovereignty on behalf of the people of Kosovo, and empowered to transfer these attributes to interim governmental entitles, private investors and to institutions defined by the ultimate political settlement. Yugoslavia can be understood to have a reversionary interest which might be altered in an ultimate political settlement.

In 1973, Allan Gerson developed the idea of trustee-occupant to explain the status of the West Bank.[16] 

Because political self determination and independent economic growth are the goals, the trustee-occupant is empowered to “make substantial changes in the laws and institutions remaining in force in the occupied territory.  Adherence to the traditional concept that international law prevents the occupying power from undertaking any steps away from maintenance of the status quo ante, however, militates against the policy of political and economic self determination.”[17] The Gerson position engendered controversy,[18] mainly related, however, to the special circumstances of applying the concept to the Middle East. It did not relate to the soundness of the trustee-occupant concept itself.

The trustee-occupant theory[19] is the best way to provide an operational framework consistent with international law for  UN SCR 1244. The UN entered upon its duties in Kosovo, not as a belligerent, but with the consent of Yugoslavia. UNMIK is a trustee, with explicit authority to administer Kosovo for the benefit of its peoples, including authority to make changes in legal institutions.[20]  The October, 1999 report of the International Crisis Group (“ICG”) recommends a pragmatic approach, urging UNMIK to work through de facto Kosovar Albanian institutions at the local and municipal levels rather than focusing on controversies over who has political and administrative authority.  The UN Security Council resolution in Kosovo recognizes the independent interests of the people of Kosovo.  It is therefore reasonable to characterize the U.N.’s role in Kosovo as similar to that of the mandatory powers in Palestine.

The rights and duties   associated with the reversionary interest, if any,  will be decided in the political settlement contemplated by U.N. SCR 1244.  In the meantime, it is not necessary to know the nature  of the reversionary interest in order to understand the powers and duties of the trustee.  Like the trustee occupant in the West Bank, the U.N. has similar powers to change laws and institutions as appropriate to pursue the goal of self-determination and economic growth consistent with regional peace.  Such exercise of powers in pursuit of that goal will benefit the owner of the reversionary interest whoever it is.

Clarifying property ownership

Some sort of property law regime is necessary in Kosovo in order to attract private (and public) capital. Investors must be able to own something that they receive in exchange for their investment. Moreover, the private law system in Kosovo must provide reasonable security of ownership of these things. Owners must be able to transfer the things for value, and they must be able to enforce claims to assets represented by the things, either by forcing liquidation of the assets or by compelling managers of the assets to perform certain duties aimed at preserving the value of the things.

“UNMIK shall administer movable or immovable property, including monies, bank accounts, and other property of, or registered in the name of the Federal Republic of Yugoslavia or the Republic of Serbia or any of its organs, which is in the territory of Kosovo.”[21]

Beginning in 1989, Milosovic accelerated his efforts to displace Kosovar Albanian control over state and social property (two distinct categories) in Kosovo, with control being shifted to Serbian and foreign ownership, often by integrating Kosovar enterprises with Serbian enterprises.  The result was Serb, French, and Italian ownership of many facilities and buildings that are needed to establish public functions and major enterprises.  Importantly the UN, by recognizing Yugoslav law as of March, 1999, ratified these ownership interests.  The Kosovars do not recognize them as legitimate, and would have preferred that the property regime be rolled back to its state as of 1989.  There is something of an impasse between the UN and the interim government over this issue, preventing further evolution of property law and privatization plans. The Kosovars simply are unwilling to pay rent to people they view as occupiers without color of legal authority.   In early December, UNMIK promulgated Regulation Nos. 24 and 25, repealing its initial determination to apply Yugoslav law in effect in June, 1999, instead substituting UNMIK regulations as primary law, with Yugoslav law in effect as of 1989 as a fallback. This represents significant progress in resolving the stalemate, while still leaving to be resolved competing claims over specific property.

The problem is not unlike that which confronted the Czech Republic after the “Velvet Revolution,” when much controversy surrounded the sorting out of property interests of those who were displaced by the Communists go after the second world war, and the Nazis before that.  The problem also is not unlike that confronting Cuba, in which economic development must confront competing claims to property that was seized by the Communists when Castro came to power. 

On 17 November 1999 the Special Representative of the Secretary-General Bernard Kouchner, head of UNMIK, signed Regulation 23 establishing a Housing and Property Directorate and Housing and Property Claims Commission. It is not clear that the directorate and commission have jurisdiction over conflicting claims to commercial, as opposed to residential, property. Now UNMIK and the Interim Government of Kosova must develop answers to the following questions and appropriate doctrinal and institutional approaches to implement the answers:

1.     Whose property interests should be recognized as legitimate, and whose should be nullified?

2.     How can competing claims to the same piece of property be made known so they can be resolved?

3.     What kind of compensation should be provided to those whose property interests are qualified were rejected, and by whom should the compensation be paid?

4.     How can alienation and use of property be facilitated now, while competing claims are being worked out? In other words, how can clouds on title be removed?

5.     To what extent is the property directorate and property commission machinery set up by the UN adequate to deal with these issues?

Despite the utility of the trustee occupant concept, ownership of relevant property is likely to remain murky for an indefinite period.  The use of the usufruct concept as in Poland may be an effective way to deal with uncertain ownership.  UNMIK could simply exercise eminent domain over the necessary property interests and make available a 99-year or 999 year usufruct to investors, leaving a reversionary interest in whoever formally owns the relevant property – without having to identify the reversioner now. 

Framework of commercial law

The legal framework for economic development is beginning to take shape.  In addition to the DTI, UNMIK has promulgated a regulation on contracts for the sale of goods.[22]  The special representative has signed a regulation on foreign investment in Kosovo.[23]  DTI has prepared regulations on business organizations, and on pledge, which were introduced to the Interim Administrative Council in December.[24]  Earlier, regulations on banking[25] and on micro enterprise financing[26] were issued. But the pace of regulation has slowed alarmingly, under the leadership of the new special representative, Hans Haekkerup. UNMIK has issued only three regulations in the first fourth months of 2001, compared to a total of 69 regulations in all of 2000 and 27 in the second half of 1999.

Public Institutional Framework

The organizational framework for economic development has begun to take shape. The establishment of the Department of Trade and Industry ("DTI") within UNMIK Pillar IV, by UNMIK Regulation 2000-63 provides a clear locus of responsibility within UNMIK to support development of markets and private enterprise.  Among the duties of the DTI are to establish a regulatory framework in Kosova for business "appropriate to a market economy,"[27] "reconstruction and development of industrial and commercial enterprises,"[28] and "support for small and medium sized enterprises in Kosovo."[29]  In particular, DTI is to develop recommendations to the Interim Administrative Council[30] for, "the attraction of foreign investment to Kosovo, including providing information to potential investors, matching potential investors with local partners, assisting investors in obtaining necessary licenses or other authorizations, compiling and publishing foreign investment data and working with other administrative departments to encourage foreign investment …."[31] 

All of these responsibilities are to be fulfilled by developing policy recommendations for the Interim Administrative Council through the deputy special representative of the Secretary General for Economic Reconstruction, Recovery and Development.[32]

In addition, DTI is authorized to act as administrator or trustee for enterprises separately determined by the Secretary General to be appropriate for administration by UNMIK, to require surrender of those enterprise assets to DTI, and to enter into leases or other arrangements for management, reconstruction, or reorganization of such enterprises "in the interest of Kosovo."[33]  This authority to act as administrator or trustee is limited to "enterprises that are industrial or commercial in nature," excluding enterprises providing basic infrastructure or services such as utilities, transportation, or telecommunications, and enterprises specifically assigned to municipalities.[34]  Determinations by DTI in its capacity as administrator or trustee are without prejudice to claims of ownership or other property rights that may be asserted in courts in Kosovo or "in a judicial mechanism that may be established in a subsequent regulation."[35]

Capital market mechanisms - Intermediation

A comprehensive banking system need not be in place before necessary capital market functions can be performed, although it obviously would be helpful.  UNMIK's DTI has recognized that an entity such as a "Kosovo investment agency" may require some donor support.[36]  The World Bank’s International Finance Corporation may have a role to play. In private sector terms, a “Chicago Corporation” model may be appropriate: a small investment bank, geographically based in Kosovo, which can aggregate local and foreign capital and work personally with entrepreneurs.

Capital market intermediaries can perform a variety of functions:



In a developed economy, a wide variety of public and private institutions perform these functions, including public accounting firms, and their professional associations, investment banks, banks, rating agencies, issuers of letters of credit, private insurers, mutual funds, management consulting firms, regular and bankruptcy courts.


These legal institutions are backed up legal regimes that:



When the legal regimes exist, the institutions reduce transaction costs for investors and entrepreneurs.  When the legal regimes do not exist, or are ineffective, each type of intermediary that actually holds assets introduces new risks.[37]  Banks, investment banks, or mutual funds organized in Kosovo, with assets primarily in Kosovo, and subject primarily to Kosovar law and legal institutions, are unlikely to work; they will not command sufficient trust to attract investment.  Such institutions organized in the West, however, and subject to the laws of Western Europe or the United States, and with significant assets in Europe or the United States, may be effective.


Conversely, intermediaries performing evaluation, monitoring, and rating functions need to be close to the action they are evaluating.  This militates toward creating those institutions "on the ground," in Kosovo.  Institutions attempting to perform such functions from outside the country can be misled too easily. European or American investment funds—whether concentrating on debt or equity—can have sufficient scale and leverage to enforce reasonable integrity by indigenous Kosovar evaluation and rating entities.


Of course many of these functions can be performed directly, eliminating the need for intermediary institutions, when investors closely monitor the activities of the entrepreneurs with whom they invest.  Extended family, or cultural, bonds can facilitate this sort of disintermediation.  Even when culture and family is the primary guarantor of investor security, however, the efficiency of the capital markets can be improved by easy access to information about those seeking capital for particular entrepreneurial activities and those willing to invest.  This means that some form of brokering or "matchmaker" function is desirable even before other forms of capital market institution develop.

At a fairly general level, what is required is a simple marketplace – a capital market – in which potential investors can easily find out about projects in which they can invest, in which entrepreneurs can find potential investors.  Any such market must have intermediaries who report the credit-worthiness of entrepreneurs; intermediaries who help both sides negotiate deals; reasonably standard forms to structure the relationships; and dispute resolution machinery to handle matters when the deals are unsuccessful.  In the long term, this states the requirements for investment banks, stock exchanges, commercial and corporation law and lawyers, commercial and bankruptcy courts.

In the short term, all of these functions can be performed at a useful level without waiting for the formal permanent machinery.  Simple lists of opportunities and interested investors, printed on paper or posted on the Internet, can permit entrepreneurs and investors to find each other.  The Chamber of Commerce can vouch for credit-worthiness and credibility of business plans.  Local and foreign lawyers and trusted family or personal associates can help with the negotiations. Standard forms for deals like these are readily available to anything experienced in international business transactions. Various forms of mediation and arbitration can help when the participants are disappointed – some of them actually being used now by the Chamber of Commerce.

Technical assistance needed to develop model contracts, and mechanisms to provide investor security, such as accounts receivable financing agreements, can be provided by the Chamber of Commerce and through workshops organized by domestic and foreign universities. 

The development of appropriate capital market functions can proceed incrementally. No one need wait for a comprehensive analysis of all business opportunities in Kosovo, any more than they need wait for a full banking system or a complete system of commercial and corporation law to be established. It is a useful beginning to get one investor together with one entrepreneur and then to let the word spread. One or two early successes can be the most powerful argument for others to invest and for other entrepreneurs to use the intermediation services.

The reestablishment of the Kosova Chamber of Commerce with the encouragement of UNMIK Pillar IV[38] provides a mechanism for private actors in Kosovo and abroad to provide technical assistance and to help match human and financial capital with entrepreneurial opportunities and initiatives in Kosova.

The Kosova Chamber of Commerce has strong leadership, a financing base, and support from UNMIK and the U.S. It is in a strong position to develop most of the tools of intermediation discussed in this section, especially if it works effectively with Diaspora groups and foreign business and law schools.

An UNMIK regulation establishing the Chamber has been drafted but has not yet been issued because of turnover in UNMIK personnel and some internal jurisdictional posturing between Pillar IV and Pillar II.  In the meantime, the Chamber is operating under revised UNMIK Regulation 1 which makes the laws of 1989 applicable.  Those laws establish the Chamber with membership of all registered companies, as the attachment explains more fully.  UNMIK issued a letter to the Kosovar Chamber approving its operation and authorizing it to issue certificates of origin to facilitate trade.

The Chamber works closely with the Interim Administrative Council on the preparation of tenders.  Six proposals have been received including one from the Berlin Chamber of Commerce to establish a Euroinfo center in conjunction with the Kosovar Chamber and with the European reconstruction activity.  This center would be funded at the $674,000 Euro level, and would include Web pages and other mechanisms for disseminating information about economic opportunity in Kosova. 

The Chamber has a project review office to provide technical assistance in developing business plans and evaluating them for feasibility.  This component also has some market research capability of its own.

The Chamber's international relations office is organizing itself to provide assistance on helping Kosovar entrepreneurs get visas so they can attend trade shows in other countries and in establishing visibility and presence in foreign countries. 

The Chamber is already playing a rating function role to some extent.  It has reported on companies in which foreign investors were interested and presently is involved in mediating and perhaps arbitrating a dispute between English investors and a Kosovar Internet café.

Web site

The Internet’s World Wide Web is a powerful mechanism for intermediation. Already UNMIK uses the Web effectively[39] to make it easy for interested persons to understand the legal and political environment in Kosovo as it changes from day to day. Economic development institutions in other countries regularly use the Web to post opportunities for contracting and investment.

A sound economic development strategy for Kosovo must do the same. Making maximum effective use of the Web would post business opportunities in Kosovo and collect the names of people who are potentially interested in investing.  Those investors interested in obtaining local legal assistance or in a “rating” on the credit worthiness of a local firm or entrepreneur could request such services by clicking a button on the Web page. The Web presence would include a directory of those providing professional services in Kosova and abroad, including legal, accounting, and language translation services. It also could provide model contract language as a kind of “kit” for counsel in a particular deal to begin with in drafting specific language for a specific deal.

The web site should provide the full text of recommendations and proposals, form contracts, information about willing business advisers and counsel both inside and outside Kosovo, and, over time, a database with the names and contact information of people with specified kinds of expertise from the the Diaspora and elsewhere who are available to help put together projects in Kosovo. 

Conclusion and recommendations

The International Community is deeply committed to success in Kosovo, which requires economic development. Private investors may be willing to invest in Kosovo if legal uncertainties can be resolved and appropriate political risk insurance arranged.

Uncertainty over sovereignty and the eventual political solution for Kosovo need not paralyze those otherwise able to proceed with investment and economic development. The trustee-occupant concept fits UNMIK’s role under SCR 1244 like a glove. Common-law trust analysis reinforces the appropriateness of the trustee-occupant model.

Priority should be given to enterprise formation and capital mobilization in the small and medium enterprise sectors, even as the international institutions proceed to reform and private state- and socially owned enterprises. Entrepreneurial energy abounds within the local population, and adequate sources of private capital exist locally and within the Kosovar Diaspora in the United States, Switzerland and Germany.

Work done now on capital market institutions can have major payoff in linking financing with business ideas. The Kosova Chamber of Commerce is a promising nucleus of such an effort.

Right now, the Chamber cannot afford to pay the expenses of an office in D.C.  Even though its organization assures a revenue stream from its members, it has not been able to collect the dues because there is no banking system in Kosovo. The Kosova Foundation might be able to help finance the Washington office, and USAID might have funding (but USAID money may not be spendable in the United States). Some American Kosovar might simply be willing to finance the center for a period of time.  Further expiration of financing options depends upon getting up a written plan and budget for the Washington office.

To avoid perceptions that the Chamber is linked too closely with the any one political party in Kosova, a "steering committee" of leaders of all of the principal Diaspora groups in the United States would be desirable.


[1] Dean and Professor of Law, Chicago-Kent College of Law, Illinois Institute of Technology, 565 West Adams Street, Chicago, IL 60661; (312) 906-5010; John M. Scheib, of Covington & Burling, is a co-author of an earlier version of the parts of this article dealing with the trustee-occupant concept. The author appreciates thoughtful ideas from Besim Besaj, Hassim Thaqi, Ibrihim Rugova, Agim Gjinali, Dino Asanaj, Bart Brown, Allan Gerson, Jeff Grade, Phil Hablutzel, Claire Hill, Jerry Lavin, Richard Longworth, Charles S. Rudnick, Brian O’Connor, Eric Priest, and Scott Waguespack, and Chicago-Kent LLM students Jurgen Bartl and Tomasz Sieniow.

[2]  (Cologne, 10 June 1999),,

[3] Stability Pact, paragraph 10.

[4] Id., paragraph 41,

[5] Id., annex paragraph C.

[6] Kosovo 2001-2003:  Reconstruction to Growth (a preliminary assessment by the Department of Reconstruction, UNMIK EU Pillar) (December 2000).

[7] Id. page 24.

[8] Kosovo 2001-2003, page 24.

[9] Id. at page 24.

[10] Kosovo 2001-2003, page 8.

[11] See generally Richard Cameron Blake, The World Bank's Draft Comprehensive Development Framework and the Micro-Paradigm of Law and Development, 3 Yale Human Rights & Dev. L. J. 159, 166 (2000) (reviewing history of law and development).

[12] Id. at 166-168.

[13] Id. at 170.

[14] On 22 October 1999, UNMIK adopted legislation authorizing lending institutions to make loans to individuals and small business in the territory. Under Regulation 13, institutions, other than banks, can legally provide micro-credit up to 2,000 DM. The regulation creates a simple licensing scheme for donors to channel funds to finance local projects.

[15] Obviously any such assessment would require assumptions about levels of disposable income of the Kosovar population, which in turn may depend on spending by the international community.

[16] Allan Gerson, Trustee-Occupant:  The Legal Status of Israel’s Presence in the West Bank, 14 Harvard Int’l L.J.1 (1973).

[17] Id. at 46-47.

[18] See Falk & Weston, 32 Harv. Int'l L. J. at 138 (criticizing Blum "missing reversioner" theory as unsupported by authority, and Gerson's trustee-occupant theory as resting "essentially on the personal authority of Professor Gerson himself").

[19] The basic concept of trustee-occupant in international law common law dovetails nicely with the powers of a trustee under the common law and under civil law analogies. A trustee has the power to transfer trust property, even when a transfer cuts off reversionary interests, as long as the trustee exercises the power consistently with the terms of the trust and its purpose.

[20]    Indeed, UN SCR negates usual customary international law duties to the reversioner by the terms of paragraph 11.

[21] UNMIK Regulation No. 1, § 6.

[22] UNMIK Regulation 2000-___.

[23] Weekly report on Pillar IV activities (Jan. 9-15).

[24] Weekly report on Pillar IV activities (Dec. 4-11).

[25] UNMIK Regulation 2000-___.

[26] UNMIK Regulation 2000-___.

[27] Regulation 2000-63 § 2, para. 1.1 (A).

[28] Id. para. 1.1 (b).

[29] Id., para. 1.1 (c).

[30] On 15 December 1999, Hashim Thaci of the PPDK (Peoples Democratic Party of Kosovo), Ibrahim Rugova of the LDK (Democratic League of Kosovo) and Rexhep Qosja of the LDB (United Democratic Movement) signed an agreement to share the provisional management of Kosovo with the United Nations Mission in Kosovo until elections next year.  The Special Representative of the Secretary-General Bernard Kouchner, who under the agreement retains executive and legislative authority, witnessed and accepted the Agreement on the establishment of a Kosovo-UNMIK Joint Administrative Structure. A fourth member of the Interim Administrative Council formed by the agreement will be a Kosovo Serb, to be named later.  The agreement permitted UNMIK to engage interim institutions more aggressively.

[31] Id. para. 1.1 (d).

[32] Regulation 2000-63 § 2, para. 1.1.

[33] UNMIK Regulation 2000-63 § 2, para. 2.2.

[34] Id. § 2, para. 2.4.

[35] Id., para. 2.5.

[36] Weekly report on Pillar IV activities (Dec. 18-26).

[37] Professor Bernie Black has explained how insiders, in the absence of robust corporation law regimes, have the opportunity and the incentive to appropriate investment for themselves rather than building productive enterprises.   [cite].

[38]  UNMIK retained a Slovenian expert, Andrej Friedel, a lawyer for the Slovenian Chamber of Commerce, who made two ten-day visits helping the Kosovar group get organized.