The development trap at the heart of the Balkans.
A socio-economic portrait of Gjilan, Kumanovo and Presevo
5 July 2005
Berlin
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Gjilan. Photo: flickr/David Bailey MBE
Gjilan. Photo: flickr/David Bailey MBE

Supported by the Danish Foreign Ministry

I. INTRODUCTION

The area at the intersection of Macedonia, Serbia and Kosovo lies at the very heart of the Western Balkans, both geographically and politically. Like much of the region, it is a predominantly rural area, spanning the Skopska Crna Gora (or Karadag) mountain range. Around half of its 278,000 inhabitants live in villages, and the other half in three towns: Presevo in Serbia, Gjilan in Kosovo and Kumanovo in Macedonia.

Over the past two decades, the economic history of this area has been one of relentless decline. The manufacturing base built up during the socialist period has all but disappeared, leaving behind the rusted remains of socially owned companies which nobody wants to buy. A significant proportion of the region's inhabitants have been forced back into subsistence agriculture, working small plots of land in conditions that have hardly changed in two generations. For the young people now pushing onto the labour market, the prospects of finding work are extremely slim.

It is therefore not surprising to find that the region has also been a source of political instability. Presevo is a majority Albanian municipality at the southernmost point of Serbia, which flared briefly into conflict in 2001. The Kumanovo area is ethnically mixed, and its predominantly Albanian Lipkovo municipality witnessed some of the most intense fighting during Macedonia's 2001 conflict. By Kosovo's standards, Gjilan has relatively good ethnic relations, with a patchwork of Serbian and Albanian villages in close proximity. Nonetheless, there was violence against Serbs during the riots of March 2004. All three areas have been the subject of international mediation efforts and reconstruction programmes.

Ethnic relations appear calm for the moment, and there is no reason to believe that conflict is inevitable. Yet it is also hard to imagine the area remaining stable without improvements on the economic front. Young people without hope of a better future are easy prey to extremists on all sides. In this part of the Balkans, inter-ethnic tensions and poverty go hand in hand.

ESI has spent the past year studying economic trends in the region and looking for development potential. Most of the news is bad. Only a handful of the old socially owned enterprises have made a successful transition to private ownership. The new private sector is small in scale, dominated by shops, cafés and basic services, and can absorb only a fraction of the labour shed by industry. Commercial agriculture is on the decline, and family farms do not produce the revenues for reinvesting in machinery. We estimate that no more than 33 percent of the working-age population are employed, compared to the EU average of 63 percent.

This is the development trap at the heart of the Western Balkans. Regions with this economic profile are not attractive to private investors. Nor do they generate significant revenues of their own to support public investments in development. Unless there is a concerted effort by central governments and their international partners to invest in overcoming the barriers to economic growth, the region will continue to fall further behind.

However, there are a few, isolated success stories which reveal important lessons about what is required to initiate development. A small number of private manufacturing ventures in the Kumanovo area have risen out of the ashes of socialist industries, taking advantage of the technological knowledge, skilled workforces and commercial contacts built up under the previous system. Their success is linked to Macedonia's transition programmes – privatisation and liquidation of socially owned enterprises – which have enabled the new private sector to build on past efforts, rather than begin from scratch.

Each of the governments has a range of development policies and strategies in place. However, they are fragmented across different sectors, poorly coordinated between different agencies, and not linked to budgetary resources. There is an urgent need for integrated development planning, which recognises that the problems of agriculture, SOEs and the private sector are interrelated, and need to be addressed within a common development framework. Credible development strategies in the region must be based on solid analysis of existing obstacles and opportunities, building on trends which are already visible in particular places. Moreover, they must convert objectives into operational programmes matched with financial resources.

The problems facing this area are severe, but they are not qualitatively different from those which have been successfully tackled in new EU members and accession countries. The governments of the region, together with their international partners, would be well advised to begin applying EU development planning methodology as soon as possible, before social pressures once again build up to a dangerous level.

The area at the intersection of Macedonia, Serbia and Kosovo lies at the very heart of the Western Balkans, both geographically and politically.

Source: insar Berlin

II. PROFILE OF A PERIPHERAL REGION
1. Where people live…

Though Presevo, Kumanovo and Gjilan are border regions, they are not geographically remote. The towns of Kumanovo and Gjilan lie only 35 and 50 km from their respective capitals, and both Presevo and Kumanovo lie on the highway connecting Belgrade with Thessaloniki. Yet there is a remarkable shortage of hard information about where people are, and how they live – a symptom of a lack of serious engagement with the economic and social problems of the region. We have compiled a picture through estimates based on the best available sources.

While Macedonia and Serbia conducted a census in 2002, the last reliable population data for Kosovo are from the 1981 census. We estimate the region to have a population of some 278,000 people – roughly equivalent to a medium-sized Balkan city such as Ljubljana or Novi Sad.

Table 1: Population of the region

Municipality

1981

2002

Index

Total

Albanian

Serb

Maced.

Other

2002/1981

Gjilan

84,085

~105,972

~94,299

~11,623

--

~50

126.03

Presevo

33,948

34,904

31,098

2,984

21

801

102.82

Kumanovo area

125,502

137,382

53,651

10,358

67,821

5,552

109.47

Kumanovo

87,659

103,205

27,290

9,035

61,495

5,385

117.73

Lipkovo

21,586

27,058

26,360

370

169

159

125.34

Staro Nagoricane

8,713

4,258

1

920

3,331

6

48.87

Klecevce

4,614

1,609

--

24

1,583

2

34.87

Orasac

2,930

1,252

--

9

1,243

--

42,73

Total

243,535

~278,258

179,048

24,965

67,842

6,403

114.26

In %

 

100.00

64.35

8.97

24.38

2.30

 

 

The area is marked by its ethnic diversity, despite the conflicts of recent years. Around two-thirds of the population (180,000) are ethnic Albanians, making up a majority in the Kosovo and Southern Serbia areas, as well as in the Macedonian municipality of Lipkovo. There are 68,000 ethnic Macedonians, predominating in Kumanovo town and the three rural municipalities of Staro Nagoricane, Klecevce and Orasac. The 25,000 Serbs are present on all sides of the border as a minority. The remaining 6,400 people belong to other minorities, mostly Roma.

The area has three towns: Kumanovo with 76,275, Gjilan with around 60,000 and Presevo with 13,426 inhabitants. The population is therefore divided roughly equally between the urban and rural areas (see table 2).

Curiously, the area exhibits both overpopulation and depopulation in different parts. In the Kumanovo area, ethnic Macedonians and Serbs held most of the jobs created from the 1950s onwards in socially owned enterprises (SOEs) and the public administration. During the 1960s and 70s, they moved in such large numbers from the villages into the town that the three rural municipalities of Staro Nagoricane, Klecevce and Orasac became virtually depopulated. Their combined population fell from 27,117 in 1948 to 7,030 in 2002, a loss of three-quarters, leaving behind mainly the elderly and uneducated.

By contrast, with few jobs available to them in urban Kumanovo, the rural Albanian population depended on labour migration as a survival strategy. From the 1970s onward, some moved to Skopje or other big cities in search of work, and many others went as guest workers to Western Europe, particularly Switzerland, Austria and Germany. The remittances they sent back were vital to the survival of village communities. However, labour migration did not keep pace with high rates of population growth, and the Albanian villages continued to grow.

Table 2: Population in urban and rural areas

Area

Urban

Rural

Rural %

Gjilan

~59,000

~46,972

44.3

Presevo

13,426

21,478

61.5

Kumanovo

76,275

26,930

26.1

Lipkovo

--

27,058

100.0

Staro Nagoricane

--

4,258

100.0

Klecevce

--

1,609

100.0

Orasac

--

1,252

100.0

Total

148,701

129,556

46.6

 

In Gjilan and Presevo, the pattern was different. Large-scale industrialisation began much later, in the 1970s in Gjilan and as late as the early 1980s in Presevo. Though ethnic Albanians had access to jobs in socialist industries, industrialisation was much less intensive, and did not lead to strong urbanisation.

As a result, Albanian villages in Lipkovo, Presevo and Gjilane are overpopulated, given the scarcity of employment and the low productivity of agriculture. Many families survived through labour migration, with young men working in Western Europe and sending remittances back to the village. According to the 2002 census, in addition to the 34,904 residents of Presevo municipality, another 12,846 are registered as "temporarily abroad".

However, as migration policies in Western Europe have become stricter, the opportunities for labour migration have all but disappeared, depriving young Albanians of the traditional route to social and economic advancement. Across the region, the effects are being felt increasingly strongly.

2. …and what they do

Of the 278,000 people living in the region, there are only 37,534 in registered employment. To this figure can be added those who are unregistered – particularly in small-scale agriculture. While individual farming is the most important single sector of the regional economy, it forms a grey zone almost entirely invisible to the state. In the absence of reliable data on the farm workers, if we assume that on average each farm provides the equivalent of a single full-time job, it would suggest that around 22,000 people are active on private farms.

Table 3: Employment in the Kumanovo area, Gjilan and Presevo (2004)

Company

Kumanovo area

Gjilan

Presevo

Total

FORMAL EMPLOYMENT

17,839

16,483

3,212

37,534

Public Sector

5,070

4,455

1,405

10,930

Education

1,633

1,877

634

4,144

Health care

953

939

149

2,041

Municipal administration

78

383

183

644

Central administration

1,409

845

320

2,574

Local public companies

413

161

40

614

National public companies

584

250

79

913

(former) SOE Sector

3,795

2,082

546

6,423

Active companies

3,000

1,513

304

4,817

Defunct companies

795

462

242

1,499

Inactive companies

0

107

0

107

Private sector

8,974

9,946

1,261

20,181

ESTIMATE OF (INFORMAL) JOBS IN AGRICULTURE

11,120

8,000

2,969

22,089

TOTAL

28,959

24,483

6,181

59,623

 

This gives a figure of 34 percent of the working-age population in employment of some kind. This is a desperately low number – far below Bulgaria at 51 percent and not much more than half of the EU average of 63 percent. Presevo's annual GDP per capita in 2002 was €308 – only 20 percent of the Serbian average.

While jobs are scarce all over the region, it is in the Albanian areas, where nearly one-third of the population is less than 15 years old, that the labour-market pressures are most desperate. In Gjilan alone, more than 2,000 pupils finish school every year, pressing onto a saturated labour market offering only 16,500 non-agricultural jobs.

Table 4: Age structure and employment (in percent)

Municipality

0-14

15-64

Over 64

Employed as % of 15-64

Gjilan

32

62

6

37

Presevo

32

60

8

30

Kumanovo area

24

66

10

32

Kumanovo

22

69

9

n/a

Lipkovo

33

62

6

n/a

Staro Nagoricane

16

57

27

n/a

Klecevce

12

53

35

n/a

Orasac

11

51

38

n/a

Total

28

64

8

34

Bulgaria

16

68

16

51

EU 25

17

67

16

63

 

III. BACK TO SUBSISTENCE FARMING

Presevo, Kumanovo and Gjilane are predominantly agricultural. It is this fact, above all else, which holds them in poverty. In the former Yugoslavia, official support to agriculture was concentrated on the socialised sector – farmers' collectives and socially owned agro-combines – while private farming was kept small and undercapitalised. In the post-socialist period, the socialised agricultural sector has all but disappeared, leaving behind the small, private farms. No serious measures have been taken by any of the governments to boost the productivity of private agriculture. On the contrary, there has been a steady decline in the sector, with less produced and less reaching the market. Increasingly, families in the rural areas are dependent upon subsistence agriculture to survive, with no real prospect of increasing their production.

The roots of rural underdevelopment lie well back in the socialist period. Yugoslavia began as a peasant society dominated by subsistence farming, particularly sheep breeding. At the end of the Second World War, three-quarters of the population was working the land. In Kumanovo, the most developed part of the region, not only the village population but also 60 percent of the urban population was engaged in agriculture, which provided 70 percent of local output.

During the socialist period, various attempts to socialise agriculture were largely unsuccessful, leaving some 90 percent of agricultural land across the country in private ownership. However, socialist policies sought to repress capitalism in the rural economy by limiting the size of private farms (usually to 10 ha) and the employment of agricultural labour. Industrialisation and urbanisation were seen as the primary policy instruments for modernising the countryside. Many rural households acquired a source of wage income, and agriculture became increasingly a secondary activity.

Under these conditions, private farming did not generate the revenue to allow investment in new technology to increase productivity. As late as 1965, in the whole of Serbia there were no more than 2,300 tractors in private ownership. Private agriculture remained in a primitive state.

Farming on a larger scale was limited to a small number of agricultural SOEs. In the 1960s, the companies in Kumanovo and Gjilan engaged in farming, stock raising and food processing were unified into large agro-combines, which by the 1980s employed close to 2,000 workers each. These combines unified the food chain from crop cultivation (mainly wheat and vegetables) and animal husbandry (cattle, pigs, goats and turkeys) through to food processing. The combines included dairies, slaughterhouses and cool storage as well as wholesale and retail trade. Kumanovo even had a winery and fruit juice production. Smaller co-operatives, usually employing between 30 and 100 workers, operated in many villages of the region. Together with two tobacco processing factories and large bakeries in Kumanovo and Gjilan, the combines monopolised agro-processing in the region.

After the end of socialism, large-scale agriculture collapsed. The two large agro-combines disintegrated in the mid-1990s. "Agrokultura" in Gjilan, once employing some 1,800 workers, has entirely ceased production. The salaries of its 107 remaining workers are paid from revenues generated by renting out the company's premises. Kumanovo's "ZIK" has been divided into a dozen parts in preparation for privatisation. There is no common management any more and – except for the dairy that has been successfully privatised – the units are in a dire state. The pork farm and slaughterhouse have shut down and the winery, juice production unit and cooling house appear to be close to a similar fate. The "orangerie" and a considerable part of the farm land is leased to private farmers on an annual basis, for cereals and vegetable growing. With such short time horizons, the tenants neglect good farming practices in order to extract as much as possible each season, resulting in decreasing yields with each passing year.

The two tobacco factories have seen a slow but constant decline. After unsuccessful privatisation attempts, they ceased to operate in the early years of the new century. The Kumanovo bakery entered bankruptcy proceedings in 2004, and the one in Gjilan survives only by running down its assets and stocks.

Table 5: Food and agro-processing

 

Company

Location

Sector

1989

2004

1

ZIK Kumanovo (now split in 12 subsidiaries)

Kumanovo

Agriculture, animal breeding, milk, transport and trade

2,000

310

2

Agrokultura/Mladost Agricultural combine

Gjilan

Agriculture and agroprocessing

1,800

107

3

TKK Boro Petrushevski-Papuchar

Kumanovo

Tobacco and agriculture

849

0

4

Tobacco combine Gjilan

Gjilan

Agro processing

506

15

5

Zhitomel

Kumanovo

Mill and bakery

316

201

6

Zitopromet/Kualiteti

Gjilan

Mill and bakery

310

121

7

DIP

Presevo

Tobacco

70

65

 

Total

 

 

5,851

819

 

The demise of socialist agriculture has affected not only the employees of the combines and the cigarette factories, but also thousands of tobacco growers and small-scale farmers that sold their produce to the combines for processing. While Presevo's tobacco farmers produced some 1,200-1,400 tons in 1989, output fell to 700 tons in 2000 and to 70 tons in 2004. The Kumanovo area's tobacco output of some 2-3,000 tons per year in the 1980s dropped slowly over the 1990s and drastically after 2002 to practically nothing in 2004. Except for small, private dairies and two slightly larger meat-processing companies, the region today has no agro-processing.

The collapse of large-scale, commercial agriculture leaves the small private farms of the socialist era as the main producers of agricultural output. In the Kumanovo area, there are a handful of larger farms up to 100 ha, mostly rented from ZIK and private owners, growing mainly cereals. Even the largest farms are family run, with no more than two or three workers and some seasonal labour at harvest time.

The rest of the agricultural sector appears to be small-scale family farming, producing very little for the market. There is little hard information about this end of the sector. We cannot say for sure how many farms there are, or calculate the average size. However, the limited data available suggests there may be around 22,000 farms across the region, averaging 3.48 ha.

Table 6: Cultivated land and estimated number of farms in the region

Area

Cultivated land (ha)

Data on farms

Average size (ha)

Kumanovo area

53,964

11,120 holdings

4.85

Kumanovo

19,437

5,860

3.32

Lipkovo

7,238

2,484

2.91

Staro Nagoricane

13,093

1,478

8.86

Klecevce

7,360

767

9.60

Orasac

6,836

531

12.87

Gjilan

18,358

~8,000 agric. households

2.29

Presevo

4,532

2,969

1.53

Total

76,854

22,089

3.48

 

Although animal husbandry was never well developed in the area, it has declined steadily over the past two decades. According to national statistics, in Kumanovo between 1981 and 2002 the number of cattle decreased by 42 percent, pigs and poultry by 30 percent, and sheep by 71 percent. Across the Kumanovo area, there are fewer then 30 farmers with more then 10 cows. In Gjilan municipality, 11 farms have more than 40 goats, 4 farms have more than 200 sheep, and only one farm has more than 35 cattle. According to available data, the average farm in the region has a single cow, one or two sheep and a few hens.

Table 7: Animal stock in the Kumanovo area, Gjilan and Presevo

Animal stock

Kumanovo area (2002)

Gjilan (2004)

Presevo (2002)

Total

Cattle

9,813

10,368

5,756

22,769

Sheep

28,812

7,211

1,779

35,491

Pigs

10,790

4,265

452

15,507

Poultry

89,934

94,170

41,056

175,990

 

Crop production has also fallen drastically. The following table shows that in the Kumanovo area, which has the largest farms in the area, the area under cultivation has decreased for all crops except wheat. However output is down even for wheat, indicating that per hectare yields have fallen substantially to around 40 percent of the EU average. In Gjilan, there is only one farm planting more than 50 ha cereals and only one farm with more than 0.3 ha covered horticulture. No farm has more than 3 ha open horticulture.

Table 8: Decline of crop output in the Kumanovo area 1989-2003 (with comparisons to Macedonia)

Crops

Ha cultivated 2003/1989

Output (tons) 2003/1989

 

Kumanovo area

Macedonia

Kumanovo area

Macedonia

Wheat

+16%

+1%

-26%

-28%

Maize

-41%

-22%

-67%

0%

Tobacco

-80%

-26%

-75%

-13%

Tomatoes

-21%

-18%

-49%

-4%

Peppers

-41%

-15%

-15%

+39%

Wine

-30%

-28%

-12%

+22%

 

Though these figures need to be treated with care, the evidence strongly suggests that agriculture across the Kumanovo/Presevo/Gjilan region is slipping backwards into a subsistence trap. With small plots and little mechanisation, family farms cannot compete on the open market, and end up producing just for the family's own needs. There is no incentive and no funds to invest in increasing productivity. Unless there is a structural change in the agricultural sector, it will remain trapped at this low-level equilibrium.

Structural change would require a major effort on a number of fronts from government: land reform, extension services, credits, financial support for investments, the development of cooperatives for procuring inputs, transport and marketing, and so on. As discussed below, there are no such agricultural support programmes operational in Presevo or Gjilan, and very little in Kumanovo.

Yet even if a structural change towards commercial agriculture were to commence, the short-term effect would be to release low-productivity labour from the farms and add to the pressures on the labour market. Solutions to the rural development trap must therefore address agriculture as part of a coherent regional development strategy.

IV. DEINDUSTRIALISATION AND ITS SURVIVORS

Industrialisation in the former Yugoslavia was a highly politicised process. Investment decisions were made in a top-down fashion, often with little regard for economic or technical efficiency. While Kumanovo was selected for industrialisation right after the Second World War, Presevo and Gjilan were never a priority area for industrial development. The latter two eventually received a selection of SOEs, but industrialisation came late, lasting barely a generation before Yugoslav socialism went into terminal decline. Most of it has now disappeared.

Yet employment patterns and growth potential in the region turn out to be strongly influenced by this history of largely unsuccessful industrial development. Development never begins from a blank sheet of paper. It is about building on existing advantages – industrial capital, infrastructure, technology, skilled workers, business contacts and so on. In the border region, many of the advantages built up during the socialist era have been lost, due to a lack of effective transition strategies. However, the region's handful of successful companies have either been built from former SOEs, or from the skills and business contacts which they developed.

1. Stories of transition

During the socialist period, there were 94 SOEs, employing a total of 31,330 workers. Most of the workforce was concentrated in four sectors: metal processing (6,067), food and agro-processing (5,851), textiles (4,886) and leather (4,693). The flagship companies were the shoe manufacturer CIK in Kumanovo, with some 3,600 workers, and Kumanovo's steel pipe producer 11 October and Gjilan's textile giant Inteqj, employing some 2,400 workers each.

By 2004, there were only 6,423 workers left in former SOEs – a fall of 80 percent. Only 11 manufacturing companies across the region are still in business, and of these, all but three appear to be on a downward trajectory. Most are insolvent, struggling to bring their product to market or to pay their employees.

Table 9: Employment in the region's (former) SOEs

Sector

1989

2004

Kumanovo

18,530

3,795

Gjilan

10,537

2,082

Presevo

2,263

546

Total

31,330

6,423

 

Most of these surviving companies are in Kumanovo, which had the highest concentration of manufacturing. It is only in Kumanovo that there has been some success with privatisation, managing to attract new investment into the companies. The two most successful former SOEs, the steel pipe producer "11 October" and the textile company "Bibrok", have both attracted foreign investors, and now account for more than half of the remaining manufacturing jobs in the region.

Table 10: Active (former) SOEs in manufacturing

 

 

Company

 

Location

 

Status

 

Sector

Empl.

1989

Empl.

2004

1

FZC 11 Oktomvri

Kumanovo

FDI

Steel pipes and profiles

2,400

1,044

2

Bibrok

Kumanovo

FDI

Textile

630

418

3

Jugoterm

Gjilan

SOE

Metal processing, radiators

453

218

4

Dimche Erebica

Kumanovo

SC

Wood processing

800

185*

5

RJ Simpo (Vranje)

Presevo

SOE

Furniture

184

154*

6

30 Juli

Kumanovo

SC

Plastic processing

400

152*

7

Metalac/Celiku

Gjilan

SOE

Metal processing

358

124*

8

Zitopromet/Kualiteti

Gjilan

SOE

Agro processing/bakery

310

121*

9

1 Maj

Kumanovo

SC

Wood processing

200

96*

10

Buducnost

Presevo

SOE

Whitewash production

107

94*

11

Prosveta/Grafikos

Gjilan

SOE

Printing house

154

55*

 

Total

 

 

 

5,996

2,661

FDI = foreign direct investment; SOE = socially owned enterprise; SC = stock company
* operating with difficulties

 

With an annual turnover between €30 and 40 million and over a thousand employees, "11 October" is by far the region's biggest company and most important exporter. On average, ten lorries leave the factory every day. Nearly all of its annual production of 50-60,000 tons is exported, mostly to Germany, Italy and the UK.

Three important factors have contributed to the company's success: the successful identification of new markets, the reduction in the labour force, and foreign investment. The traditional markets for the company's products were in the Eastern Bloc. After 1990, the company managed to build on its limited knowledge of Western markets and reorient itself entirely towards the EU. It nonetheless faced a sharp drop in demand for its products. Unlike many other companies in the region, which retained their workforces at full capacity until they were unable to pay them, 11 October implemented a managed downsizing programme, reducing its labour force from 2,400 in the late 1980s to 1,044 today. It accomplished this through a "technological surplus" scheme and a policy of not replacing retiring workers. Modest salaries of €150-200 for an average worker also helped to keep labour costs low. In 2000, a 48 percent share in "11 October" was bought by the German company KUPBAL Baldinger.

The company manages to succeed in the European market because it produces a good product – steel pipes – at reasonable prices. The machinery from socialist times is good enough to meet European quality standards, and the company benefits from labour costs that are well below those in Western Europe. However, the company does not seem to have an active programme for investment in new technology, to enable it to boost productivity and expand its product mix. In the longer term, its future depends upon its ability to adapt to the needs of its customers.

The Bibrok textile company, located in Kumanovo's industrial zone, has followed a similar pattern. It successfully reduced its workforce from 630 to 418. A majority stake of 56 percent was bought by an American investor of Serbian origin (Retrospettiva INC – Beverly Hills) in 1998 for €330,000. Originally, the company produced suit fabrics for the Yugoslav market, but now carries out piecework for US and German companies.

Though few of the former SOEs have been able to make the transition to successful private companies, it is clear that Macedonia's privatisation programme is the reason why Kumanovo retains a stronger job market. Privatisation enabled those companies with sound management and a good product to adjust (by shedding labour) to the demands of the free market. Macedonia has also over the last years implemented a liquidation programme for decrepit SOEs, which is beginning to free their assets for use by the private sector.

By contrast, neither privatisation nor liquidation has yet taken place in Presevo or Gjilan. Neither new management nor capital had been brought into the companies, which continue to be managed along socialist lines. As a result, most of them have collapsed or are close to bankruptcy. The only successful SOE is a producer of radiators, Jugoterm, in Gjilan. Employing 218 workers, it sells across the region, mainly in Kosovo and Serbia. It has a brand name which was well known in the former Yugoslavia, and still offers a quality product at competitive prices. This is in large part a legacy of the socialist period, when the company was known as being reasonably well managed and equipped, with a minimum of overstaffing.

However, the lack of privatisation means that the company still operates as an SOE, led by a director elected through "workers' council" elections. Like most companies in the socialist period, the management maximises short-term returns, rather than investing in the company's future. Instead of setting aside funds for investment in urgently needed machinery, the management of Jugoterm prefers to pay workers high salaries, averaging €320-350. It is no coincidence that Kalabria, one of the largest distributors of Jugoterm radiators in Kosovo, is owned by the brother of Jugoterm's director.

In other words, there has been no effective transition strategy in the enterprise sector in Gjilan or Presevo. This is a disturbing finding. Transition is a time-bound process. The longer the old SOEs are left to drift, the less value they have to offer the private sector. Yet, as the next section shows, development and job creation depends critically on whether the assets, both physical and intangible, from the socialist sector can be utilised by the private sector.

2. Manufacturing in the new private sector

Since the end of socialism, a large number of new private companies have been registered around the region. However, most of the new private sector is in trade and small-scale services. Manufacturing makes up only a very small percentage of its activities. Apart from a handful of carpentry shops, dairies and bakeries serving the local market, we found only 13 new private manufacturing companies able to sell their product outside their immediate area. Their products include shoes, mineral water and soft drinks, furniture, bicycles, carpets and blankets, concrete elements and meat products. Together, these companies employ around 1,000 people.

Table 11: Private production companies that have markets outside the region

 

Company

Location

Sector

Market

Empl.

1

Tusevski

Kumanovo

Shoes

EU

200

2

LGB

Gjilan

Meat processing

National

120*

3

Bejta Comerc

Gjilan

Mineral water, gravel, glue

National

108

4

Sobim

Kumanovo

Bicycles

Balkan/national

100

5

Mobilerie e Kosoves

Gjilan

Furniture

National

78

6

Eksimor

Gjilan

Carpets and blankets

National/Balkan

62

7

Korp Projekt

Kumanovo

Concrete elements

National

60

8

Boss Cevli

Kumanovo

Shoes

Balkan

60

9

Fluidi

Presevo

Plastic bottles & soft drinks

National/Kosovo

50

10

Compact Group

Gjilan

Mineral water (& trade)

National

40

11

Boss M

Kumanovo

Shoes

Balkan

40

12

Fluidi

Gjilan

Plastic bottles & RC Cola

National/Serbia

35

13

Ekstramein

Kumanovo

Meat processing

National

35

 

Total

 

 

 

988

* The "LGB" sausage factory, located in Gjilan's former meat-processing SOE, employs 120 people, but out of these over 100 are former SOE employees that had to remain on the payroll due to the rent agreement with "Agrikultura" that rents out premises to "LGB".

 

The most important development success story in the region has been the emergence of a cluster of private companies in Kumanovo involved in shoe making. This cluster emerged from the ashes of the socialist giant, CIK, which once employed 3,600 people. Today, there are some 45 private companies in the shoe-making business, employing around 1,200 workers. They produce shoes for the national and Balkan market, as well as piecework for EU-based manufacturers. The cluster is now large enough to support sub-contracting within Kumanovo, as well as a market in inputs such as shoelaces, plastic parts for boots and special knives for cutting leather.

The story of Tusevski, the largest private shoemaker, is quite instructive. Tusevski started in 1992 with ten workers. Today it employs close to 200, and subcontracts to other companies employing at least another 200 workers. The company is located in the old industrial zone, in a building bought from the socialist metal factory KEN. The building has been adapted and is the most modern in the rather dilapidated industrial zone. The visitor is greeted by a well-maintained garden and flagpoles flying "Tusevski" flags.

A long-standing partnership with the German company Trettal has been crucial to the development of the company. The chief of production of Tusevski had worked for a large shoemaking SOE in Skopje called "Gazela". When that company collapsed in the early 1990s, he came to Tusevski and brought with him his business contacts with Trettal. It was mainly due to this personal relationship that Trettal was willing to contract with an otherwise unknown, new private company. The German partner supplied machinery which Tusevski paid back gradually with finished products. When the German company closed down a few years later, Tusevski found new foreign partners, who now purchase 95 percent of its output.

Recently, the bankrupt SOE CIK was purchased by Korimpeks, a Macedonian company owned by an Italian businessman, for €630,000, as part of a joint venture with an Italian company. This deal emerged from a programme of support by the International Finance Corporation's Southeast Europe Enterprise Development (SEED). SEED's manager was apparently impressed by the shoe manufacturing cluster in Kumanovo, and arranged for a special credit line to support Italian companies investing in Macedonia. In October 2002, a delegation of Kumanovo shoemakers visited the Chambers of Commerce of Italy and Milan. The first credit was awarded to Formentini from Southern Italy to support a joint venture with Korimpeks to revive shoe production in the CIK facilities. Within a year, the new venture is expected to employ around 960 workers – a tremendous boost for the local economy.

There are a number of factors contributing to the success of the shoemaking cluster which are key to understanding the development prospects of the region. First, shoemaking in Kumanovo builds on a long tradition stretching back into the socialist period and beyond. (Kumanovo had 55 shoemakers in 1930.) The new companies have been able to build on the skills, both technical and managerial, and the business contacts developed by the socialist giant CIK. Because of CIK, there is a high school in Kumanovo which offers technical training in leatherworking, sending its pupils as interns into companies to acquire the skills needed for shoe manufacturing. In companies such as Tusevski, half of the employees are former CIK workers, and the other half are young people trained at this technical school. Without this base of skills, there is no reason why a successful cluster would emerge in Kumanovo.

Second, success breeds success. Kumanovo's shoemakers have built up an effective network, meeting together regularly to address common problems. The Association of Macedonian Shoemakers, based in Kumanovo, aims to strengthen the cluster by undertaking joint marketing efforts and facilitating technical spillovers. In January 2005 a "shoemaking technical centre" was opened with the aim of strengthening the shoe industry's international competitiveness. Through measures such as these, a handful of successful enterprises can initiate a virtuous circle of industrial development.

Where there is no such resource base to build on, the obstacles to establishing new, private manufacturing businesses are substantial. We found only two examples across the whole region of new products able to compete in the wider market: bicycles and blankets. Both are produced by trading companies which began to produce their own goods to substitute for imports.

Sobim is a company belonging to the brothers Branislav and Marjan Angelovski, who began in business in the early 1990s with two clothing boutiques in downtown Kumanovo. One day they were offered five bicycles through a friend for a good price. They sold them quickly through their clothing shops, and ordered another 25. The following season, they ordered an entire container. The bicycle trade expanded rapidly, and by 1996 they abandoned the textile business altogether and focused exclusively on bicycles. In 1997, the brothers began to experiment with importing bicycle components and assembling them in Kumanovo. Soon they had constructed a production hall of 6700 m2 in Karpos, a new small industrial zone on the northern outskirts of Kumanovo. By 2002, Sobim began to replace imported components with its own manufacturing. It now produces bicycle wheels with the help of two sophisticated Taiwanese robots, and operates a production line to paint bicycle frames. Today, Sobim employs 100 workers and produces around 85,000 bicycles annually, most of which are exported to Slovenia, Bosnia and Serbia.

Similarly, Ridvan Ismajli, the proprietor of Eksimor, started off in 1990 with a small trading company dealing mainly in textiles. It was only after the Kosovo conflict that Ismajli, a dynamic mechanical engineer in his mid-30s, started to import semi-finished carpets and blankets to be finalised in Gjilan. Today the company's 62 workers produce about 1,000 blankets and 5,000 square metres of carpets per day, with an annual turnover of about €8 million. Some 20 percent of the turnover is still made through imports of finished products, including diapers, towels and fabrics. Back in 1993, Ismajli established a company in Istanbul in order to procure finished and later semi-finished goods. In 1996, he established another company in Serbia, employing 11 workers in Belgrade and Loznica, in order to compete better on the Serbian market. Today, two thirds of Eksimor's products are sold in Kosovo, and the rest is exported, mainly to Serbia.

Paradoxically, these two, isolated success stories illustrate the difficulty of commencing with new production in the region, and why the private sector in general has shied away from production. First, even though the collapse of socialist industries has left behind a large number of idle production halls, both companies had to make major investments in constructing premises and paying for their connection to public infrastructure (electricity, water and waste water). This suggests a failure in transition strategy. Second, neither company was able to access credit on a commercial basis during their establishment phase. Interest rates were prohibitive, if banks were willing to lend at all. Only once the companies were well established were they able to access credit for working capital. Third, both companies relied on engineers from the SOE sector for their initial technical expertise. However, they faced a serious shortage of appropriately qualified young workers. Sobim, for example, has not recruited any graduates from the local technical school, preferring to train its workers on the spot. This represent a significant, additional cost for new businesses.

The obstacles facing new manufacturing businesses are therefore substantial, and it is not surprising that so few have succeeded. With a sluggish supply-side response, the business opportunities created by a company like Sobim (which would like to purchase additional components from Macedonian suppliers) have not been exploited. Unless more companies are able to cross the threshold into manufacturing, the private sector cannot hope to absorb the tremendous pressures building up on the labour market.

V. A primitive service sector

By far the majority of private companies in Kumanovo, Gjilan and Presevo are in trade and services, providing an estimated 80 percent of total employment in the private sector. Over the past 15 years, there has been a major shift in employment away from manufacturing and towards services, as in all Western economies. Yet the dynamics here are very different. The change has not been caused by the introduction of labour-saving technology and the development of a sophisticated knowledge economy. Rather, the collapse in manufacturing which accompanied the end of socialism led to a mushrooming of small and family businesses in retail and basic services. Their value-added is low, and the market is well and truly saturated. Unless there is income growth across the region, there is very little potential for this sector to expand.

In all three areas, post-war reconstruction fed a short-lived boom among private construction companies. However, construction activities declined sharply as reconstruction programmes came to an end.

Data on the private service is very limited. Many small companies have been established and disappeared again without deregistering, making the statistical data unreliable. For example, according to the statistical office, in December 2002 there were 7,248 companies in the Kumanovo area. However, the public revenue office maintained that no more than 2,200 were active, together with another 440 individuals registered as self-employed.

There is rather better data available on the private sector in Gjilan. According to the municipal directorate for economy, there were 10,027 employees in the private sector in 2004, of whom nearly two-thirds were in trade, 12 percent were tradesmen such as carpenters, locksmiths and bricklayers and another 10 percent in hospitality, leaving only 776 in manufacturing and 680 in construction.

Table 12: The predominance of services in Gjilan's private sector

Shops

Workers

Trade

6,345

Restaurants, cafés, hotels

976

Tradesmen

1,250

Construction

680

Manufacturing

776

Total

10,027

 

In Presevo, the municipal registry of sole traders gives a fair picture of the structure of the private sector. Out of a total of 262, the overwhelming majority (225) are in trade. The rest are cafés and restaurants, taxi drivers and tradesmen. Another 190 taxi drivers, shop keepers and tradesmen are, for tax reasons, registered in 7 craft cooperatives. In addition, there are 268 private companies registered at the court in Leskovac.

Table 13: "Samostalne radnje" in Presevo 2004

Activity

Nr.

Trade

225

Café/Bar/Restaurant

8

Cab drivers

5

Bakeries

4

Carpenters

4

Locksmiths

4

Bricklayers (“maistori”)

4

Plastic production

3

Construction (bagger work)

2

Mills

2

Car mechanic

1

Total

262

 

The private sector in all three areas is dominated by simple consumer services, with very little diversification. In downtown Kumanovo, the region's largest urban centre, there are 766 shops and offices. Of these, nearly 500 are traders, with grocery stores, clothing and kiosks predominating. Another 115 are bars and restaurants. The balance of 154 are providing services, dominated by five basic types: hairdressers (30), lawyers and notaries (24), money changers (21), travel agencies (10) and photo studios (9).

Table 14: Service sector in downtown Kumanovo

Small businesses

Nr.

Shops

498

Cafés, fast-food, restaurants

114

Other services

154

Hairdressers/barbers

30

Lawyers and notaries

24

Money exchanges

21

Travel agencies

10

Photographers

9

Total

766

 

Private business of this kind is not an engine of growth. It reflects the purchasing power of the local community. Once the market is saturated, it cannot grow further unless other economic development is taking place.

The other part of the service sector is of course the public administration. It represents the most stable component of employment since the demise of the socialist system. Note, however, that while public employment across the region has remained more or less stable since socialist times, state revenues have decreased substantially. This means that a larger proportion of the public budget is being spent on salaries, rather than government programmes.

Table 15: Public administration in Gjilan, Presevo, and Kumanovo

Sector

Kumanovo

Gjilan

Presevo

Total

Education

1,633

1,877

634

4,144

Health care

953

939

149

2,041

Municipal Administration

78*

383

183

644

Central Administration

1,409

845

~320

2,574

Municipal public companies

413

161

40

614

National public companies

584

250

79

913

Total

5,070

4,455

~1,405

10,930

* including the small municipal adminstrations of Lipkovo, St. Nagoricane, Klecevce and Orasac

 

VI. THE STATE OF DEVELOPMENT PLANNING

This review of development trends in Kumanovo, Gjilan and Presevo reveals a few tentative signs of development, against a background of two decades of continuous economic decline. If present dynamics continue, there is no real prospect of employment growth in the area keeping up with the number of young people pressing onto the labour market each year. This is a social time bomb in the making. Whatever measures are taken at the political level, it is very difficult to see the region stabilising without economic growth.

To summarise, the basic features of the regional economy are as follows:

  • Commercial agriculture has declined sharply following the collapse of the socially owned agro-combines, leaving the vast majority of farmers producing at subsistence level. Development in the rural areas would require a major structural shift in agriculture towards private commercial farming. Yet even if this were to occur, the immediate effect would be to release labour from the land, adding to labour market pressures.
  • The end of socialism has been accompanied by substantial deindustrialisation, as traditional industries have collapsed. Only a handful of former SOEs on the Macedonian side have successfully made the transition to private companies competing on the open market. A large share of the region's industrial capital remains locked up in defunct SOEs.
  • The new private sector has been very slow to enter into production. The handful of success stories able to sell their products beyond their immediate locality have emerged out of the ashes of socialist enterprises, depending on established technical skills and business contacts. Yet the difficulties of establishing new private industries from such a low base ensure that these developments remain very small in scale.
  • Most of the new private sector is engaged in trade and basic services. This market is saturated, and has very little potential to generate more employment.

If this area is to break out of its underdevelopment trap, it will require a concerted effort from government to put in place the preconditions for development. The region needs integrated development strategies which approach agriculture and rural development, the transition of former socialist industries and support to the new private sector as different elements of the same development challenge.

Looking at the efforts of different government authorities, we see an emerging awareness of the need for regional development planning. However, the current approaches tend to be fragmented across multiple institutions and thematic areas, and are not supported with financial resources.

1. Local government initiatives

On principle, municipal government should have the clearest understanding of local conditions, and be most responsive to the needs of their communities. In EU development planning methodology, municipal and regional governments play a key role in identifying needs and in programming and managing development funds.

In Kumanovo, Presevo and Gjilan, however, the municipalities are so constrained by their lack of budgetary resources that their hands are largely tied. They offer very few programmes to support businesses or farmers, and have little if any input into central government programmes.

Table 16: Municipal finances (2003, in €)

 

Presevo

Gjilan

Kumanovo

Lipkovo

Resident population

34,904

~105,972

103,205

27,384

Revenues

5,211,707

9,138,413

1,769,238

438,086

Municipal revenues

1,675,367

2,607,023

1,140,619

172,745

Transfers

3,536,340

6,531,390

628,619

265,341

Expenditure

5,054,018

9,138,413

1,675,090

344,212

Salaries and wages

587,971

4,438,603

233,244

131,165

Goods & services

457,612

2,042,382

841,817

117,406

Transfers & subventions

79,948

116,000

49,699

73,083

Capital investment

3,928,493

2,541,428

550,329

22,542

Mun. exp. per capita (€)

144.80

86.23

16.23

12.57

 

Per capita expenditure in the different municipalities varied from €13 in Lipkovo to €145 in Presevo in 2003. These figures, however, are not readily comparable. The municipal budget in Presevo received substantial additional support for reconstruction from the Republic of Serbia following the conflict, most of which has now come to an end. In Kosovo, grants from the central budget for education and health are channelled via the municipal budget. At present, Macedonia has the most centralised budgetary arrangements in the region, but is about to undertake a major decentralisation initiative.

Across all municipalities, however, the discretionary funds available for capital expenditure or development programmes are extremely low – as little as €0.80 per capita in Lipkovo. These limited funds are used for basic maintenance and essential investments in roads, water supply and sewage systems.

The only scope available to municipalities to increase their revenues in the short term is through charges on land, construction and infrastructure connections. However this is essentially self-defeating, as it amounts to a direct tax on new business initiatives.

As a result, the scope for implementing development programmes is small. Municipal development plans produced in recent years have tended to list broad development goals, without including operational programmes or budgetary resources. For example, the "Local Economy Development Strategy Plan" of Kumanovo from 2003 contains five broad goals: lower unemployment; improved quality of living; traffic infrastructure; tourism; and urban renewal. The planned measures include the creation of business incubators, a small enterprise support fund, and new measures in education and training. However, these ideas are not developed in any detail, and no financial resources are identified.

Gjilan's "Municipal Development Programme for 2004 to 2007" identifies development potential in three sectors: industry, agriculture/agribusiness and small-medium enterprises (SMEs), but fails to provide any practical measures of support. It simply refers to privatisation programmes planned by the central authorities. A more recent "Local Economic Development Strategy 2005-2007" adds four new goals: an improved physical environment for business; improved infrastructure; a more responsive and professional municipal administration; and vocational training. An effort is made to specify programmes supporting the four goals, including creating a one-stop shop for business registration, the creation of a municipal body to coordinate cooperation with the Diaspora, a new industrial zone, a business incubator and an agricultural loan scheme. Again, however, it is unclear who should finance these activities.

2. Central government policies

In all three jurisdictions, development policy is largely in the hands of central government. Over the past decade, all three governments have faced a compression of their tax revenues simultaneously with an increase in the social burden – both as a result of the steep industrial decline. This has left governments with a series of hard choices, forced to divide their limited resources between meeting their social obligations and investing in development.

During the 1990s, social needs largely won the battle over development spending. Governments sought to preserve employment in ailing companies through credits and loose budget constraints. As late as 2002, a report by the World Bank on Serbia notes:

"Although recorded unemployment increased by 2002 to over 27 percent, the level of adjustment in the labor market was disproportionately less than the decline in output, due to policies that prohibited layoffs. This placed severe financial stress on the enterprise sector, producing huge losses and substantial inter-enterprise arrears. Financing came from directed credit and depressed tariffs of the state-owned utilities, including the power company Elektroprivreda Srbije (EPS). The utilities, in turn, experienced severe financial difficulties, requiring continual bank financing and consumption of the capital stock. The purpose of these interventions was to limit the social impact of the shrinking economic base. In the end, these efforts failed and the poverty rate increased."

For a number of reasons, not a single SOE in Gjilan or Presevo has been either privatised or liquidated. Delaying the transition has not prevented the demise of the companies, but has ensured that, by the time they finally collapse, there is often little left of value beyond the real estate. Even for the most promising SOE, Jugoterm in Gjilan, preserving the old management system has meant that a potentially successful company has been starved of much-needed investment. This represents a missed opportunity to preserve elements of the region's industrial capacity.

There has been more progress in the Kumanovo area. The more successful SOEs have been privatised. For companies like 11 October and Bibrok, privatisation has attracted both better management and new investments. In the last couple of years, Macedonia has also begun to liquidate those companies that were unprofitable and could not be sold. This is a painful process, requiring the laying off of workers. However, it has the effect of freeing up industrial assets for use by the private sector – particularly production halls with infrastructure connections. As a result, it is only in Kumanovo that we can see new private manufacturing rising from the ashes of former socialist industries – particularly the shoemaking cluster. Nonetheless, Kiro Spandjev, chief of the sector for industry of the Macedonian Ministry of Economy, admits that Macedonia has yet to develop sectoral strategies or industrial policies. His sector employs just 13 people in two departments to analyse and restructure loss-making industries.

A more active transition strategy is therefore critical to the region. At present, the private sector is too weak to absorb redundant SOE workers. Transition of the SOEs therefore needs to be accompanied by measures to support the creation of alternative, private-sector employment.

The governments have recognised the need for a more dynamic approach to supporting the private sector. All three have prepared strategies for SME development, including reforming the legal framework and creating institutions to support SMEs. However, the resources are too limited to make any substantial impact. A report from 2004 notes:

"A key problem remains that the Governments lacks the resources to implement the strategy commitments. For example, although the SME Agency is state funded, it receives little resource from the state budget (€50,000). €15,000 is earmarked for staff costs, with the remainder destined to support SME projects. This budget is not commensurate with the activities identified in the SME Strategy. FYR Macedonia will continue to depend on the international community for resources to promote small enterprise development. The MoE relies heavily on the EC, USAID, UNDP and World Bank to support SME activities."

In Serbia, an SME strategy was adopted in January 2003 ("National Strategy for the Development of SMEs and Entrepreneurship"). Its two ambitious goals are to increase the number of SMEs from 240,000 to 400,000 and to create an additional one million jobs in SMEs. As in Macedonia, resources are scarce. The Republican Agency for the Development of SMEs and Entrepreneurship (ASMEE), established in 2001, receives € 170,000 from the state for its operational budget, but in 2003 this covered only some 20% of its projected expenses. The balance is being sought from donors and commercial revenue. In Kosovo, a report notes that business centres "have largely developed on an ad hoc basis. None has achieved financial sustainability or is likely to do so. All rely on donor project funding to maintain their core activities." Strong reliance on donor funding means high volatility and insecurity of funding, making multi-annual programming impossible.

These poorly financed programmes have made little impact on the most important obstacles facing the private sector, such as expensive credit, poor infrastructure and municipal taxes which suppress new development. Furthermore, these SME strategies are rather abstract in nature, containing an undifferentiated set of measures for almost the entire enterprise sector. They are not based on an analysis of the particular constraints or opportunities facing private businesses, and are not responsive to opportunities such as the cluster of shoe manufacturers in Kumanovo.

Perhaps the only exception is an "Integrated Socio-Economic Development Plan" for Southern Serbia 2005-2007, financed by the European Agency for Reconstruction. It covers the two southernmost districts of Serbia, with a total of 469,000 inhabitants. A draft version from March 2005 contains a quite detailed analysis of regional trends and a series of concrete measures totalling €22 million. It is not yet clear, however, whether the respective financial resources have been identified.

Finally, there is a marked shortage of credible agricultural programmes aimed at helping rural families make the transition from subsistence to commercial farming. The traditional neglect of private farming under the socialist period continued throughout the 1990s. Agricultural policy in Serbia and Macedonia has consisted largely of subsidies and protective measures targeted at large-scale farming, which has in any case steadily declined in the region. Only recently has Serbia begun to introduce some specific programmes aimed at young farmers, while Macedonia has created some schemes which small family farms can access. In Kosovo, there is no real agricultural policy at all. While the Ministry of Agriculture has undertaken some useful analysis, the resources allocated for agricultural programmes are negligible.

3. The need for regional development planning

This brief review of development policies suggests a number of common problems:

  • There is a tendency to produce strategy documents in isolation from the budget process, without identifying financial resources. Unless governments make their programming choices by reference to a known resource envelope, they will not make the hard choices required to identify priorities. Strategies which are not anchored in the budget process are little more than statements of good intention.
  • The three governments all face an overall shortage of budget resources to fund development programmes. Compressed revenues combined with large social obligations are both symptomatic of the development trap. There is a strong case for external assistance which both increases the resources available to the governments and encourages them to direct more of their own resources towards development programmes (along the lines of the EU's principle of 'additionality').
  • All three governments have tended to produce a range of thematic strategies, rather than integrated development programmes. As a result, existing development spending is fragmented across different areas and institutions. There is little sign of productive cooperation between different levels of government.
  • In Serbia and Kosovo in particular, there is a need for transition strategies which accelerate the privatisation and liquidation of SOEs, and which endeavour to make sure that their resources, both physical and intangible, are made available to the private sector.
  • There is little sign of investments going into vocational training, to ensure that young workers acquire the skills needed by the new private sector.
  • There is a real vacuum of policy for rural areas. There is no policy framework in place to address the return to subsistence agriculture and assist small farmers to produce for the market. Nor is there any broader concept of rural development planning. Structural change in agriculture will need to be accompanied by measures to create non-agricultural employment in rural areas.
  • At present, development programmes are not anchored in a solid understanding of current realities. There is a marked shortage of hard information and analysis about present trends. This leads to development strategies which are frustratingly abstract, and which miss the chance to support positive dynamics such as those seen in Kumanovo.

This suggests that the governments in the Western Balkans need to rethink their current approach to development planning.

Though the challenges facing regions such as Kumanovo, Gjilan and Presevo are severe, they are not qualitatively different from those which are being successfully tackled in the new EU member states, or in accession countries such as Bulgaria. The EU offers a sophisticated development planning methodology which mobilises national resources, international assistance and the efforts of public institutions at all levels behind the goal of helping underdeveloped regions catch up, socially and economically. Through National Development Plans and accompanying regional strategies, the EU approach ensures that the range of development efforts all fit within an integrated strategy, while differentiating according to the particular challenges and potential of individual regions.

With the Western Balkans heading for eventual EU membership, all of the countries of the region will need to learn the techniques of EU development planning eventually. It therefore makes sense for both governments and their international supporters to design their programmes according to the EU framework.

The sooner they begin to do so, the better for places like Kumanovo, Gjilan and Presevo. Otherwise, the benefits of Europeanisation may come too late to prevent social pressures from reaching a critical level.

Berlin, 5 July 2005
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