Long live the economic crisis?

There is an upside to the global recession: greenhouse gas emissions are expected to fall with 3% this year. This would lead to emissions in 2020 being 5% lower. This contrasts to a 60 year history of an average 3% growth in emissions a year. While this may be good news for our climate, government budgets suffer as a result. But we need these government budgets. To keep our planet from warming more than 2° Celsius, $400 billion a year between now and 2020 will need to be invested in greening our energy infrastructure.

The carbon recession

The International Energy Agency (IEA), the world’s premier energy analysts, published their World Energy Outlook this Tuesday. (link)

They predict a drop in greenhouse gas (GHG) emissions of 3% in 2009, mainly because of the economic crisis. Three quarters of the reduction is the result of less industrial activity, with the rest coming from countries turning to renewable energy and nuclear power.

This is good news for our climate as business as usual would mean an increase in temperatures by 6° Celsius.

Since the 1950s GHG emissions have been increasing globally by roughly 3% a year. The 2009 fall in GHG emissions is the biggest in 40 years. The biggest drop occurred during the oil crisis of the early 1970s when many companies were forced to close down due to a doubling of the oil price. The second drop in GHG emissions occurred after the collapse of the Soviet Union which depended heavily on coal. The most recent drop took place in 1998-99 when carbon emissions fell by 0.3%, interestingly the world economy continued to grow, mainly though information technologies and service sectors which use less energy. (The Guardian)

   

The 3% cut in emissions is the result of less industrial activity.

The cost of change

To prevent the earth from warming more than 2° Celsius, we need about “18 nuclear power stations, 17,000 turbines, 100 concentrated solar power stations and 16 carbon capture and storage plants to be built every year until 2030” according to IEA’s chief economist, Fatih Birol. This adds up to an annual investment requirement of $400bn a year building more than 350 new nuclear plants and 350,000 wind turbines in the next 20 years. As a point of reference, the record sized U.S. economic stimulus plan is worth a total of $787 billion.

According to the IEA oil, coal and gas needs to peak at 2020 and then decline. the share of renewables and nuclear which is now 18% worldwide needs to go up to 33% by 2030. However the key to success, is improving energy efficiency of the world economy.

We also need to move away from the traditional internal combustion engine for cars. By 2020, maximum 40% of cars should make use of internal combustion engines. To hold emissions to 450ppm [parts per million], which corresponds with a global warming of 2° Celsius, you need more and more hybrid and electric cars.

Facing these huge figures, it is easy to despair. Yet we need to act urgently and now. “Every year of delay adds an extra $500 billion to the investment needed between 2010 and 2030 in the energy sector” according to IEA Executive Director Nobuo Tanaka.

The importance of Copenhagen

It is thus extremely important to achieve success in the Copenhagen climate summit in December this year. Not only our climate, but also our future energy supply and government budgets will depend on it.

If Copenhagen is a success we can perhaps hope to no longer need a recession to start the switch from carbon-based fuels to green energy.

Originally published on the Th!nk About It blogging competition (link)

Where did all our money go?

Governments around the world reacted with a spending-frenzy facing a triple crisis of the worst economic downturn since the second world war, energy insecurity and climate change. Never before so much public money was invested in such a short time. But where did all our money go to? Was “smart green growth” merely rhetoric or substance? Research shows that but little was actually invested in green jobs around the world. The best pupils were South-Korea, China and the European Union (see “% green fund” table below).

Governments’ pledge

On September 15, 2008 the Lehman brothers collapsed, marking the biggest bankruptcy in US history. It also marked the beginning of a huge financial crisis, developing in the biggest economic crisis since WWII.

The reaction of governments worldwide was as swift as it was humongous. Trillions of dollars were spent worldwide to save the economy with the citizen’s hard earned tax money. Many pledged to spend the money on green measures. Much in the same wording as at the G-20 summit in London on 2 April 2009 where the largest economies vowed to “make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery.  We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure.”

How green was the recovery?

The question now arises if the rhetoric matches reality, how green were these individual economic recovery packages? HSBC’s Global Research Division has published a report on 25 February 2009 answering exactly that question. The report “ A climate for recovery” investigated more than 20 economic recovery plans on their green credentials in spending and tax-cutting.

HSBC concluded that roughly 15% of the estimated $2.8 trillion could be associated with investments consistent with stabilising and cutting global carbon emissions.

South-Korea allocated more than 80% of its fiscal stimulus spending to green initiatives, taking the lead on a percentage basis. The European Union (58.7%) and China (34%) followed up closely. But China did top the list in terms of absolute size of planned green spending ($200 billion). By contrast, India was investing nothing of its $13.7 billion stimulus plan for green ventures. Italy and Japan were the least green of the rich G7 countries, allocating just 1.3% and 2.6% respectively. The United States ranks second in terms of absolute spending, although but 5th in percentage.

On the left you can see a graph of the theme allocation in the green stimulus plans. As HSBC notes, the bulk of spending is allocated to green infrastructure. By laying the foundations future green growth is underpinned. Spending went in large part to buildings, grids, rail and water. The construction and capital goods sector are likely to be the major beneficiaries, according to HSBC.

Did governments become greener in the last months?

Although the HSBC report is a good documentation of the planned spending behaviour of the world’s recovery packages, many has changed in the last 8 months. Perhaps most notably, Japan has elevated its climate change targets to a 25% cut in carbon emissions by 2020, baseline 1990. The green character of the recovery package in United States diminished starkly under pressure from the Senate (and its associated lobby groups). Chinese President Hu Jintao pledged to cut emissions of carbon dioxide by a notable margin in coming years, even with a still booming economy. And India’s environment minister Jairam Ramesh says India could agree to “implicit” carbon emissions targets as part of a global climate change deal, by passing domestic laws enshrining concrete measures that India would take to control greenhouse gases as its economy grows.

But this is again just rhetoric, I am looking forward to the next hard facts in a comprehensive study.

Give us back our money

3.4 million jobs were created in Europe alone through green funding and regulatory support. However, only 15% of the recovery packages went to stimulating jobs in this sector. Meanwhile the prospects for the earth’s climate are further deteriorating.

The lesson learned is that we shouldn’t be so rash anymore letting our political leaders spend so much public money so fast on things like fast German cars or easy tax-cuts.

In my last post I documented the rise of green jobs. Governments play a crucial role in stimulating these new jobs. Which country did best for its people?

Green jobs on the rise – world climate business revenue $2 trillion by 2020

The worldwide New Green Deal is becoming a reality. Global revenues from all climate-related businesses are now worth a stunning $530 billion. It could even exceed $2 trillion by 2020. In Europe 3.4 million jobs are already directly related to the low carbon economy, compared to 2.8 million jobs in polluting industries. Climate change has become a real business driver and more and more companies are interested in becoming green.

The green world economy

The famous 2006 Stern Review on the economics of climate change forecasted climate-related revenues to climb to $500 billion by 2050.

However, HSBC Global research estimates that we have already surpassed that. Global climate-related revenues now already top a stunning $530 billion and are likely to exceed $2 trillion by 2020.

The proliferation of green deals all over the world caused a rise of 75 percent in this market in the last year alone. This contrasts starkly with a slowdown of the world economy in 2009 to less than 1% GDP growth.

The climate sector has not only surpassed Stern predictions. According to the HSBC report it has even surpassed the size of the global aerospace or defense industry.

Countries such as the United States, Japan, France, Germany and Spain profit the most from this new green growth. They account for 76 percent of global climate revenues.

HSBC differentiates between four main categories in the green economy. Of these four, investments in energy efficiency present the largest opportunity, with a 30 percent return on investment. Carbon/climate finance follows closely with investment returns at 24 percent. The two other climate investment categories are low-carbon energy production and the control of water, waste and pollution.

Green jobs

Behind every company there are workers. Behind every profit there is a wage. The green economy is no different and is already boosting employment.

The WWF report “Low carbon jobs for Europe” shows that at least 3.4 million European jobs are directly related to renewable energy, sustainable transport and energy efficient goods and services. This compares with 2.8 million jobs in polluting industries, such as mining, electricity, gas, cement, and iron and steel.

Split up in different sectors this means 400,000 people are employed in renewable energy activities, some 2.1 million in efficient transport, and over 900,000 in energy efficiency goods and services.

These green jobs require a very broad range in skills. Low to medium skilled workers are needed for manufacturing, installing and the maintenance of wind turbines and solar panels. High skilled workers are needed to research and develop the innovative green solutions for tomorrow.

Green business model

In order for businesses to continue green investments, the business model needs to change. Paying attention to the impact of economic activity on the planet needs to become a source of profit.

A recent study suggests this is already the case. Sustainability is now seen as a major business driver with 52 percent of companies (65 percent of large companies) designing and offering sustainable products or services, about 72 percent of American companies (85 percent of large) reducing costs through improved materials efficiency, and 58 percent (60 percent of large) manufacturing or sourcing domestically/locally. In addition, 59 percent of large companies offer energy-efficient products and another 59 percent provide customers with more information about social and environmental impacts of their products and services.

Governments need to continue their support for the green economy

However, to support these changes in business model and the profits in the green business, governments need to sustain their support for the green economy. Much still needs to be done after the initial money boost through the green deals worldwide.

Buildings are still using too much energy while it is economically viable to renovate them to become more energy efficient. The energy production needs to change to renewables, while a smarter electrical power grid is needed to support this change. Transport is still far too carbon-fuel dependant while investments are required to make carbon-friendly alternatives such as trains and boats more attractive. Support in many other sectors is needed to supply the green economy with the adequate infrastructure and provide incentives to businesses wishing to go green.

Governments have often lagged in implementing climate change policy, sometimes even in spite of an obvious direct positive impact. Belgium for example has been one of the three EU countries who did not oblige car fuel to be mixed with biofuel. As a result 100s of jobs in the Belgian biofuel sector were lost to the gain of the oil sector. Other countries have lagged in renovating their building stock to use less energy, in spite of the fact they would not have to pay one Eurocent for the works.

In my next post I will therefore focus on the recovery packages of governments around the world to combat the economic crisis. Was all the green rhetoric reflected in actual spending of all that public money? And how well did Europe score?

Sarkozy : an imprudent populist or a cunning strategist ?

Eastern Europe has been stealing jobs by using their people to produce French cars being sold to French people. That is going to stop with me.

This is the baseline of Sarkozy’s remarks in the last couple of days. But as we have seen in the 1930s, protectionism results in retaliation after retaliation, countries keep on building walls, eventually suffocating themselves. So why did Sarkozy utter these words last week, even though he must be aware of the implications? Is he an imprudent populist or an intelligent and cunning strategist?

One way of looking at it, is Sarko being a pompous nationalist, looking no further than the end of his own nose. Or is it something completely different? Could he be a cunning strategist, misleading us all?

After millions took the streets in Paris, Sarkozy launched populist, nationalistic recovery plans, soothing the mob. Hereafter he reinforced that protectionist signal, by targeting his remarks at the EU president: the Czech. This creates two very beneficial effects for Sarko. On the one hand the angry threats of other EU countries to oust French companies if French protectionist plans go through, proves the Paris’ mob wrong and partly alleviates Sarko of those pressures. On the other hand it has induced the Czech to call for an EU summit. This creates an opening for European action and coordination of the different economic stimulus packages, something the French have been demanding for several months. And it could of course also be an excellent opportunity for Sarkozy to regain European leadership.

Each day of doing nothing results in 1000s of new unemployed. One thing is sure: Europe needs to unite again to fight this crisis, to reform the financial institutions and to kick start to the European economies.

In more than 60 years we have not seen a crisis such as this one. Europe’s unemployment is projected to soar to record heights, and we can expect negative growth all over Europe deep into 2010. Loud calls for fierce government action can be heard in all European capitals. Yet Europe has not been the frontrunner in planning a government-induced economic recovery. According the EUobserver, the largest 13 EU economies’ stimulus packages, announced since September 2008, account for only €90 billion or 0.78% of GDP. Compared to the stimulus packages in the US (around 6% of GDP), China (around 7.5% of GDP) or Japan (around 6% of GDP with public debt at 180% of GDP), this is but insipid water. However, large public spending also implies large public debts and quantitatively big government spending does not equal quality. Unfortunately the European recovery plans seem to also lack quality. According to the Danish weekly, the European stimulus packages devote only €1.2 billion, or 1.3%, to green investments, compared to $58 billion for green and climate friendly investments in the U.S. “(European) rescue packages are designed to give us our old lives back”, according to Staffan Laestadius, professor at the Royal Institute of Technology in Stockholm. “It is all about saving jobs in the car industry”.

Such investment policy is firmly denounced by the Czech, not only it means building walls where we could hold hands and gain from it, but it is also very ill-advised policy. Money can indeed be used to ensure people a job, but it is not enough to just spend it, we need to spend it wisely. Money should not flow to failing industries building up debt for future generations. Money should go to the future, to education, training, innovation, research, competitive industries,… We should invest in tomorrow, not yesterday. Green investments targeted at a transformation to a green economy, are excellent examples. They help save the climate, the reduce energy dependency, reduce consumption costs and can become a key driver for innovation, entrepreneurship and jobs.

Europe today does not appear to go for a shock and awe treatment of the economy into recovery, nor does it work on its fundamentals. We urgently need to put our attention on tomorrow, not yesterday. Some countries such as Germany have understood that and are redirecting their economy to the future green knowledge economy, albeit refrain from large government funding to avoid large debts. France’s stimulus package on the other hand, which hands out money to car manufacturers as long as they stay in France, will call for subsidies of other European governments to keep their car manufacturers in their own country. This results in more of society’s money spent than needed. If we want to invest society’s money and support our ailing car industry, we would do better to coordinate and focus on the production of, for example, green cars, creating jobs but also gaining a competitive advantage.

Let us hope Sarkozy is indeed a rational and cunning strategist, who is aiming low to shoot high. Sarkozy assured European action is taken and the Czech can become the broker for an EU deal. Many tasks are in front of us, such as a shift to a green economy, providing social stability by inclusion, stabilizing the bank sector, avoiding long-term government debt and preparing for the future knowledge economy to accommodate the workers of tomorrow. To assure our future, European countries need to coordinate and cooperate in designing their economic plans to boost Europe’s faltering economy. The stakes are high. If Europe fails to unite and divides up into different fronts, an economic depression could come in sight.

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How to read EU blogs?

A novelty has appeared in the European blogosphere: bloggingportal.eu. As they themselves put it, it could become a “new way to read blogs about EU affairs”. The blogaggregator syndicates the content from currently 278 blogs about Europe and the European Union in as many languages as possible. By also structuring and rating the different posts they aggregate, it could become a powerful tool in empowering Europe’s online democracy.

http://www.bloggingportal.eu/

I strongly believe in the ability of blogging to enhance democracy by facilitating discussion between differing opinions while accomodating like-minded individuals to connect and share. Certainly within the European Union blogging must become a strong democratic forum to enable people to bridge the huge distances and languages in Europe separating the North from the South and the East from the West.

However, the development of a European blogoshpere has not been an easy task, due to Europe’s diversity. It has been a working progress slowly advancing with initiatives such as the blogplatform blogactiv, multi-author Euroblogs such as cafebabel, Fistfull of Euros or social Europe blog and finally there have also been individual bloggers such as me, perhaps you or Jon Worth.

Jon Worth has also been one of the key people behind the latest bloggingportal initiative and my insider source for this post. Some other key protagonists are programmer Stefan Happer (Politik Portal) and the EU bloggers Kosmopolit, DJ Nozem and Le Croche-Pied.

For an interesting read to get a better grasp of the EU blogosphere, you might also want to take a look at this overview and a structural analysis of how to read EUblogs.

Have fun in the sphere and make sure you find your way back out again!

Eurocrats against Entropa

The European Association for Eurocrats (EAE) proposes that the EU should form a High Level Expert Group to oversee the work of a Committee for the regulation of the registration, evaluation and authorization of Art & Jokes (HAHA), thereby allowing the EU to limit mockery to approved and standardized jokes.

The move comes in response to David Cerny’s notorious “Entropa” statue, which has been in the European Council since the 12th of January. The European Association for Eurocrats (EAE) strongly condemned the process by which David Cerny’s “Entropa” had been selected. Divad Ynrec, spokesman of the EAE today stated that, ‘Entropa is a dangerous violation of the requirements laid out by the European Commission against Humor and Intolerance (ECHI), regarding European invitations to tender to third parties for artful purposes’.

‘We cannot laugh at this piece of art’, Mr Ynrec went further, supported by the nodding and modest cheering of the colleagues present. ‘Although we protested in small numbers on Sunday, our French colleagues have threatened to go on strike as long as Entropa stays where it is’. Meanwhile the rumors are that the British are busy lobbying to ‘keep the thing there in order to keep the French out’.

The EAE views the sculpture as a direct assault on the Eurocrat-profession by typifying and mocking certain Eurocrat nationalities. Bulgaria’s Eurocrats are especially insulted by being compared to a toilet. A local Bulgarian explains the situation: ‘Although nobody knows it, David is a regular here in Brussels and everybody knows him. But after he told some particularly bad jokes, we started giving him the cold shoulder, and this is way of getting back at us”. Even the local Belgian lady that he had an affaire with isn’t spared. Their relationship broke down over diet problems and it is particularly hard for her to now be stereotyped by a box of chocolates.

The EAE believes that a High Level Expert Group overseeing the work of a Committee could prevent this from happening again. Divad Ynrec concluded by saying “We must limit mockery to approved and standardized jokes!If we don’t protect this basic ideal, what will Europe have?”

The russian future with Dmitri Medvedev: a look at the inner mechanisims

The Times published yesterday 2 very interesting articles that give a good insight into the consequences of the Russian elections that have put Dmitri Medvedev in the presidential seat formerly occupied by Vladimir Poetin. The first article “from bankruptcy to big bucks” considers the political economy of Russia. The second analysis of Michael Binyon “Back-seat driver should resist trying to grab the wheel” gives an interesting insight into the psychology of Russia’s new president

From bankruptcy to big bucks

Tony Halpin in Moscow — March 3, 2008

Two three-letter words sum up Russia’s economic good fortune under Vladimir Putin: oil and gas.

Russia was bankrupt just a decade ago, its economy in meltdown after the Government defaulted on its foreign debt and the stock market lost two thirds of its value in a single day.

Oil was just $11 a barrel in 1998, half the level of the year before, but the price rebounded sharply to $35 just as Mr Putin came to power in 2000. Foreign currency reserves tripled and Russia — the world’s largest oil producer and second only to Saudi Arabia as an exporter — has been awash with money ever since as the price of crude has risen to above $100 today.

It has wiped out its international debt and built up foreign currency reserves of $480 billion, the third largest in the world after China and Japan. It has also built up a vast stabilisation fund — worth $144 billion and growing — to support future investment and insulate the state budget against falls in the oil price.

Dmitri Medvedev inherits a country transformed by oil, though he cannot hope to enjoy Mr Putin’s luck in seeing revenues triple. One immediate challenge is to tame inflation at almost 12 per cent as the petro-fuelled economy threatens to overheat.

But the former chairman of Gazprom knows that Russia’s status as an energy superpower can only grow. Russia is the world’s largest gas exporter and has the world’s largest proven reserves. It supplies a third of the EU’s gas imports, a dependence that has triggered alarm bells in Brussels, and is extending its reach with new gas pipelines and deals to sell direct to consumers.

Critics say that the Kremlin is already using its energy influence to reassert political influence over its former Soviet neighbours, raising prices and manipulating supply. Russia replies that it is simply switching to market prices for everybody.

Some experts warn that Russia has become dangerously dependent on energy and that a dip in prices would hit the economy hard. Mr Medvedev has made diversification of the economy a central part of his programme, promising to encourage the growth of small businesses by slashing red tape and fighting bureaucratic corruption.

Analysis: Back-seat driver must resist taking the wheel

Michael Binyon — March 3, 2008

President Putin insisted last September that he did not want his successor to be a puppet. Russia would need a strong President for the foreseeable future, he said, since party democracy was still in its infancy. But did he mean it? And now that he is no longer President, will he allow his hand-picked successor any room for manoeuvre?

Mr Putin’s ambivalence was already clear then, a month before he announced that he was “willing” to serve as a future Prime Minister. He also declared that he intended to continue playing a key role in Russia’s government, and that whoever followed him “will have to reckon with me”. So how does he propose to steer policy-making as a back-seat driver? Already there are forecasts that the Kremlin Zil, zigzagging in different directions, will crash, and that it will be President Medvedev who gets hurt.

Dmitri Medvedev has no political constituency of his own. A middle-class lawyer, the son of academics, he owes everything to Mr Putin, the mentor who is very different in temperament, background and ideology. He is a competent administrator — he transformed the lumbering state-owned Gazprom into one of the world’s most influential energy companies. But, unlike Mr Putin, he has no loyal following of acolytes, former KGB colleagues or ambitious politicians. He will be accepted by the Kremlin siloviki (power-brokers) solely because he is Mr Putin’s man.

Both men understand this. But both know that a clone would be unacceptable at home and overseas. Mr Putin has ridden the wave of nationalist, nostalgic and aggrieved sentiment, basing much of his popularity on harnessing Russia’s longing to be strong, disciplined and feared again abroad.

The mild-mannered Mr Medvedev can never don the same clothes. But he can show a different face: the liberal (a relative term in Russia) who speaks for the middle class, the conciliator in tune with a young generation of businessmen more open to the outside world.

This would go down well with the intelligentsia, the only class not swept away by Putinmania. It would also smooth Moscow’s dealings with the outside world after a tricky year. All that would be useful to Mr Putin who, as Prime Minister, will remain in charge of domestic policy, where his authoritarianism finds greatest resonance.

The two can therefore work in tandem — the good cop and the bad cop. The bad cop will clearly set the pace — but he will do so as he always has: incrementally and often in the shadows. And if Mr Medvedev has any mind to challenge this arrangement, there are plenty of Putin loyalists to remind him who is still the boss.

Nevertheless, a clash could occur, largely because the presidency carries duties that cannot be ignored even by a dominant Prime Minister. Mr Putin must at times defer to the head of state, especially in dealings with foreign countries.

Neither Mr Putin nor the Russian public would welcome a President they do not respect. Mr Medvedev must assert himself at least to the point where he is considered a political figure in his own right. The question is whether, if he starts turning down an unfamiliar route, the back-seat driver will seize the wheel and even eject the driver.

Independent Kosovo faces an uncertain economic future.

“From today onwards, Kosovo is proud, independent and free,” Prime Minister Hashim Thaci announced in an address to parliament this sunday. Hearing those words, tens of thousands of ethnic Albanians came on the street to celebrate. However justifiable their celebration, the party may end with a serious hangover and a bad case of headache.

Kosovo rates as one of the poorest regions in Europe. The Kosovo government reports an unemployment rate of 42.0-43.7 percent with 90 percent of them in long-term unemployment. According to the World Bank, the average annual salary for the population is 1,243 euro, resulting in 37 percent of the population living in poverty and surviving on less than 1.42 euro/day. On top of that is the fact that Kosovo is wracked by corruption and organized crime. 15-20 percent of the Kosovo economy is run by the organized crime by estimates of UNMIK, that same UN mission is mentioned in numerous corruption charges, thereby closely resembling several of Kosovo’s leading politicians they work with. As such, it comes as no surprise that Kosovo ranks in the top quintal of the world’s most corrupt countries, next to Nigeria and Cameroon with 67 percent of the population reporting having to pay a bribe to get a service (transparency international global corruption barometer 2007).

Kosovo’s economic situation

“The secessionists ignore the economic realities” Ruth Wedgwood, a professor for international law and diplomacy at John Hopkins University in Baltimore, wrote in a commentary in The Wall Street Journal on Feb. 9. She is one of those researchers who think Kosovo has little to nothing to gain from independence. “Kosovo has coal, lead and a workforce, but it lies in a corner of Europe where only a few tourists ever go.” But not everybody agrees with this statement. The World Bank and UNMIK foresees a brighter future for the people of Kosovo.

Franz Kaps is an independent advisor to the World Bank and strongly believes in the potentials of Kosovo. Geologists recently conducted a survey and came up with some good news. Kosovo may be richer then many think with vast amounts of high-quality lignite coal (up to 15 billion tons), considerate amounts of nickel, lead, zinc, bauxite and even some traces of gold. The World Bank predicts Southern Europe will need up to 4,5 gigawats of additional electrity by 2012, creating vast potential for Kosovo’s economy. But by pointing out the potential of Kosovo, Kaps also points to the problem. The problem is the state of Kosovo’s mining industry which has to improve radically and that can only happen after the political, juridical and economic relations are made stable.

those political, juridical and economic relations concerning Kosovo were and still are for a big part the responsibility of The United Nations Interim Administration Mission in Kosovo (UNMIK). looking at the macroeconomic results of 2007 they are rightfully proud of what they have done. Notwithstanding a significant reduction in foreign assistance and public expenditures, Kosovo’s GDP is estimated to have grown by about 3 percent. Clearly, this time growth was not driven by increased public expenditure or donor spending, but by a better performance of the private sector. Several economic indicators also signalled improved economic performance. After a fall in 2005, Kosovo’s exports grew remarkably in 2006 by 54 percent, with a modest growth of imports by 5 percent. Furthermore, the rate of non-housing private investment grew impressively by 61 percent and lending to the private sector also increased. These remarkable results were achieved by privatisation of publicly owned enterprises, the implementation of the euro and membership of the Central Europe Free Trade Area (CEFTA). However, if Kosovo wants to maintain it’s economic development and build upon the economic foundations which have so far been put in place by UNMIK, big reforms are still needed. Kosovo’s economic development is still most severely constrained by interruptions in the electricity supply, weak capacity of public institutions, and the lack of adequate skills in the labour market. But Kosovo’s main obstruction to a brighter future is the omnipresent organized crime, corruption and lack of transparency.

About wedding dresses, corruption and the international community

The Minnesota daily reports of a ordinary story that perfectly reflects the problems Kosovo has to deal with. It’s noon on a weekday, and Kosovar fashion designer Krenare Rugova’s sewing machines are strangely silent. Rugova, young and U.S.-educated, is trying to build an upscale clothing business in her homeland. But she can’t work because the power has gone out for the second time this morning. “They just shut me down. I’m thinking, ‘OK, I’ll get all these wedding dresses finished in an hour,’ and then ‘zap.’ It’s very frustrating.”

Every citizen in Kosovo has an emergency generator by hand. While approximately one billion euros is put in repairing KEK, Kosovo’s old and worn out main power central, power failings occur every day. The question is how this is possible and where the KEK-billion has gone to. The answer to this is corruption. 4.5 million euros were stolen from power import during 2000-01, buying equipment from public tenders, purchasing computers from friends’ companies,… The number of allegations is immense, the charges numerous, the convictions rare. The problem of corruption is not unique to KEK, the whole society is drenched in corruption. A survey performed by the United Nations Development Program (UNDP) showed that 80 percent of Kosovo’s people consider corruption the main problem of everyday life. The institutions named as most corrupt were the Kosovo Energy Corporation (KEK), customs service, hospitals, the presidency and the government.

Bajram Kosumi, former prime minister stating that friends payed for his private jet flight; Ali Sadriu, minister of economy and finance in the previous government, allocating 430,000 euros to his nephew for implementing a dentistry project in the town of Ferizaj; former president Rugova purchasing six government vehicles for 1,5 million euros (which is more than twice the true value) with a car dealership owned by a relative,… Bribery, extortion, cronyism, nepotism, patronage, graft, and embezzlement, it is all too common in Kosovo. And not only within the Kosovo government, also the International organizations are swimming along the tide of corruption according to the respondents of the UN survey. The facts are there to support this claim. Leme Xhema, Bedri Rama and Uno Nielsen are known for corruption and signing dubious contracts. Former deputy head of UNMIK, Gerhard Fischer, and another high official, Ranier Lesar were also under investigation. Joe Trutschler, a former UN official was sentenced in Germany to 3,5 year in prison for embezzling 3,9 million euros from the Kosovo Energy Corporation budget (Kosovo B).

Not only the KEK, a.k.a. ‘Kosovo B’ but also Kosovo C power plant is getting known for corrupt practices. The case of the former Principal Deputy Special Representative Steven Schook is one example or indication of this. He was one of the main promoters of ‘Kosovo C’: a new coal power plant, a huge project with a huge budget. Kosovo’s heavily subsidized solution to the power shortages (Kosovo C) may fall once again to corruption. The question is how Kosovo will climb out of the economic valley with such widespread corruption that damages the economic tissue of Kosovo. Only effective, strong and exemplary political leadership can rectify this situation. Let that now just be the problem…

The man that Sunday proclaimed Kosovo’s independence and sits as prime minister of Kosovo, mr. Hashim Thaçi is a convicted war criminal and former head of the Kosovo Liberation Army. He was also head of the Drenica group, a mafia group who controlled 10-15 percent of criminal activities in Kosovo by trafficking heroin, cocaine, arms and stolen cars as well as engaging in prostitution and upholding international contacts. His sister may very well be the perfect example for that, as she is married to Sejdija Bajrush, one of the leaders of the infamous Albanian mafia.

The Kosovo cocktail

The question posed at the beginning of this article was whether or not the party will end with a bad hangover. But as we all know, we have to forecast the morning after the party by looking at what we drunk, so let’s look at the ingredients for Kosovo’s cocktail.

Kosovo’s economic situation at this moment is not very positive with a high percentage of unemployed, a low productivity and a lot of energy shortages. Kosovo’s economy has however big potential in the mining industry, it has the advantage of low wages and last but not least the UNMIK has pushed through some important and fruitful reforms. However, as stated before, the Kosovo government still has loads of work and reforms to plan and accomplish. The biggest challenges are the electricity interruptions, the weak capacity of public institutions and the lack of adequate skills in the labour market.

Those are in principle challenges that are controllable and manageable. But an effective policy towards Kosovo’s problems is blocked. The reason for that is organized crime and the high levels of corruption penetrating the whole society from the bottom to the top, from the poorest to the richest and most powerful, from the peasant to the prime minister. This creates a very hard and difficult situation. Independent Kosovo faces an very uncertain economic future.

Kosovo’s cocktail may prove to become an economic Molotov cocktail.

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Links:

Kosovo’s economic situation:

- www.euinkosovo.org/upload/EPO%20Kosovo%20Outlook%202007.doc

- http://www.dw-world.de/dw/article/0,2144,3122353,00.html

- http://www.mndaily.com/articles/2008/02/19/72165644

About wedding dresses, corruption and the international community:

- http://www.unmikonline.org/press/2002/mon/may/lmm290502.htm

- http://www.ceeol.com/aspx/getdocument.aspx?logid=5&id=B913E37C-703E-4EC1-BBD3-7677924EBC66

- http://www.worldpoliticsreview.com/Article.aspx?id=1559

- http://www.axisglobe.com/article.asp?article=561

- http://www.nrcnext.nl/nieuws/internationaal/article937096.ece