Kosovo Implications

Economic News

22 Jul 2010
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Anger in Serbia and Bulgaria in the aftermath of Sofia's recognition of Kosovo's independence from Belgrade will not be allowed to blow economic relations off course, authorities on both sides of the border have asserted.



On March 20, the Bulgarian government confirmed that it would be following the lead of countries such as Germany, France and the US in officially recognising Kosovo, a 90% ethnic-Albanian former province of Yugoslavia that has been administered by the United Nations since the end of a brief war between NATO and Serbia in 1999. Belgrade and the majority of Serbians, supported by Russia, oppose Kosovo's independence, seeing the region as an integral part of Serbia.



Hours after Sofia's announcement, there were reports of attacks on Bulgarian cars and motorists in Serbia, adding to Bulgarian public resentment of the government's decision - many Bulgarians consider Serbians Slavic Orthodox cousins, and are sceptical of Kosovar Albanians' claim to independence. Meanwhile, Serbia has recalled its ambassador to Sofia, Danilo Vucetic.



However, the consensus in the business and diplomatic communities appears to be that, after the heat of the diplomatic clashes has subsided, commercial relations between Bulgaria and Serbia will continue to grow and flourish.



Trade between Bulgaria and Serbia has grown by almost 50% in the past four years, according to Ljubisa Mitic, a representative of the Serbian Chamber of Commerce in Sofia. More than 100 Bulgarian companies have invested in Serbia, 25 of them participating in Serbia's ongoing privatisation process, he added.



Bulgaria's exports to Serbia grew to almost $1bn in 2007, while trade in the other direction reached $274m, local press reported. Bulgaria is also one of the most active foreign investors in Serbia, with major activities in sectors including metallurgy, fuel distribution, logistics and pharmaceuticals, Bojidar Danev, chairman of the Bulgarian Industrial Association, said in a statement after Bulgaria recognised Kosovo.



Ivo Todorov, chief operating officer of Prista Oil, a Bulgarian manufacturer with extensive operations in Serbia, told OBG that, while the immediate effects of Sofia's disagreement with Belgrade over Kosovo would be hard to gauge, the long-term outlook remained positive.



"After the first emotional impact, economic sense will prevail," he said. "When everything has calmed down, the benefits of Bulgarian investment in Serbia cannot be avoided. Serbia needs the investment, and remains part of the international family."



While Ambassador Vucetic has publicly criticised Bulgaria's recognition of Kosovo, the day after the announcement he issued reassurance on Bulgarian television that long-term economic ties would not be hindered.



Although he suggested the visit of Serbian officials to Sofia to discuss health care issues this month was likely to be called off following diplomatic tensions, Vucetic said the countries would "lay the basis for improvement of the relations in future", adding that the violence against Bulgarian drivers were isolated incidents by individuals and that the re-routing of Bulgarian traffic to central Europe away from Serbia was contrary to his country's interests. Furthermore, he stated that his return to Belgrade was only for temporary consultation, and that he remained his country's representative to Sofia.



While wishing to maintain a good relationship with Serbia, Bulgarian officials have been keen to point out that Bulgaria already has active business links with Kosovo, and that these should be developed.



"There is [...] a desire on part of Kosovo to attract Bulgarian investments," Foreign Minister Ivailo Kalfin told local media on March 22. A recent visit to Kosovo by Bulgarian Deputy Economy and Energy Minister Yavor Kuyumdzhiev and a delegation of Bulgarian businessmen was a sign of the positive outlook for sustained economic ties between the two countries, as well as the commitment the government has made to improving them further, he added.



Many in the diplomatic community believe that to deny Kosovo independence would store up tensions that could explode violently in the future. Although Spain and Romania have withheld approval, the majority of EU members have fully or effectively recognised Kosovo (with several newer Eastern European members officially taking their lead from the Union as a whole), and the chances of Kosovo returning to Serbia are increasingly small.



In the midst of the push to continue good economic relations between Bulgaria and Serbia, Danev expressed scepticism about the opportunities for Bulgaria in Kosovo. "It is clear that Bulgarian investors will be courted," he said. "Every investment in the country will be welcomed, keeping in mind that Kosovo has a 45% unemployment rate, and survives on donor programmes. But it should be taken into account this is a state with two million inhabitants, [that is to say] its economic potential as a market is not big."



Kosovo seems unlikely to become an affluent corner of Europe in the near future, nor is Serbia likely to accept independence. Many Bulgarians will also remain sceptical at best, and opportunities for Bulgarian companies are more limited in the new republic than in Serbia itself. But officials on both sides seem to acknowledge that commercial relations between Serbia and Bulgaria are on an upward trajectory, despite this diplomatic roadbump.

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