Local producers go it alone

The initial conversations I have with new Kosovar acquaintances all tend to be very similar: Hi, How are you, are you good, are you tired? Where are you from?

When I first arrived in Kosovo in August 2012, and started to go about the business of opening my microbrewery, I met more people than I could possibly remember. Some would eventually become significant to me and my business, while others would fade. Nearly all of the conversations started with some variation of the questions above.

So, I would give my answer: I am good; yes, very good; no, I am not tired. I am from New York.

The next question was as predictable as the first. Why would you leave New York for Kosovo?

I had moved here to be with the woman that I love and to pursue a business opportunity doing one of the things I love – making beer. When I look at Kosovo, I see a blank slate. So many products and services are just unavailable here that, at first glance, it’s an entrepreneur’s wild dream. All one needs to do is imagine a business slightly more inspiring than a car wash, and the possibilities are endless.

But … Why Kosovo? Despite some vague admiration, to many people, my answer of following a passion did not seem satisfactory.

It’s been just over a year since Sabaja brewed its first batch of beer, and just shy of two years since I moved to Prishtina. In that time, I’ve learned a hard truth: Despite all the potential, Kosovo is a terribly challenging place to start a small business.

There are the obvious barriers: corruption, near-monopolistic competition, and the omnipresent rumors of mafia protection rackets – all three of which are inevitably intertwined. But there are forces far less competent that really perpetuate the issue here.

How does a young and unstable economy mature, grow, and develop sustainability? A better economist than I could write a dissertation on the topic, but in basic terms, an economy like Kosovo’s stands to benefit most from increased manufacturing, which will offset imports and eventually increase exports, thus balancing the nation’s trade deficit, providing jobs, and improving the GDP. This is not an awfully complex idea, and of course some organizations have attempted and continue to support the investment in local manufacturing. Sadly, the law and local attitudes seem to work against them.
When we deal with importing ingredients, for instance, we pay customs and value-added tax (VAT) on everything that crosses the border, amounting to 27 percent added to the value of the goods. Then, when the goods are sold, another VAT of 16 percent is added to the wholesale price, and then another 16 percent on top of that is added when a bar sells the product at the retail level. Now, sure, the cost of VAT is passed on to the final customer, in theory, and if you wanted to invite the Tax Administration over to ruthlessly audit your books, go ahead. You might be able to reclaim that money, but that comes at the cost of disrupted operations and potentially devastating fines if “mistakes” are found (see the case of 3CIS, a tech firm that got unfairly saddled with a devastating tax bill).

Ultimately, the triple taxation on manufacturers leads to higher prices on locally produced goods, making them uncompetitive against global brands that are imported at extremely low cost and taxed only once or twice. It’s no wonder Kosovo that has a massive black economy – small business owners can’t afford to compete legitimately.

At the same time, public support for domestically produced goods is remarkably low. Despite campaigns like Duaje Tenden (Love Your Own), many Kosovars still perceive imported products as higher quality, even despite the fact that Kosovo consistently imports second-rate products. Class D cigarette, anyone?

I have a litany of examples I could draw from – vague regulations that are nearly impossible for a new business to find, potential for powerful competition to influence legislation that could hinder small competitors, and inconsistently enforced rules to name a few. And yet, I have hope. We see the response that our modest little brewery is getting, and the fact that a few people are willing to pay a premium for a better product. Still, in light of all that I have learned, I am not running back to the United States to encourage my friends to invest in Kosovo.

18 July 2014 - 15:04

Alex Butler

18/07/2014 - 15:04

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Prishtina Insight is a digital and print magazine published by BIRN Kosovo, an independent, non-governmental organisation. To find out more about the organization please visit the official website. Copyright © 2016 BIRN Kosovo.