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COMMERCIAL DEVELOPMENT

IMPORTANCE OF THE PROPERTY RIGHTS LAW IN THE COMMERCIAL

DEVELOPMENT

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Introduction• Report analysed the state of Property Rights Law in Kosovo

• Analysis of Property Rights Law important due to its interrelationship with commercial development

• Law is a system of rules, usually enforced through a set of institutions. It shapes politics, economics and society in numerous ways and serves as the foremost social mediator in relations between people.*

• Commerce is a division of trade or production which deals with the exchange of goods and services from producer to final consumer. It comprises the trading of something of economic value such as goods, services, information or money between two or more entities. Commerce functions as the central mechanism which drives capitalism and certain other economic systems.*

• Definitions establish the interrelationship

*Wikipedia

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• Property rights are fundamental: entrepreneurs will not invest if they expect to be unable to keep the fruits of their investment. (The American Economic Review , Stephen Knack and Philip Keefer, 1995; Paolo Mauro, 1995; Jakob Svensson, 1998; Daron Acemoglu et al., 2001).

• Property rights are an important determinant of investment by entrepreneurs. In Poland, where property rights are relatively secure, the rates of reinvestment are very high. In contrast, in Russia and Ukraine, where property rights are weak, it is found that the level of un-reinvested profits is high; entrepreneurs there have the ability to do much more investment than they actually do. (Property Rights, Environmental and Resource Economics).

International research findings

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What investors are looking for?

• Key points from investors point of view:

– Support from authorities– Availability of land– Land ownership issues– Investment incentives– Infrastructure: energy, roads, utilities– Workforce availability and qualifications– Local co-operation partners – outsourcing– Time frame – duration of the decision taking process

*ROCKWOOL LTD

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• Studies of the state of Property Rights Law in Kosovo by EC(EAR) USAID found major deficiencies (See bibliography)

• In Kosovo disputed property claims are very high. At the moment there are 14,007 cases pending at the Municipal Court in Prishtina alone (Municipal Court in Prishtina, Data Center).

• Calculations:• 14,007/550,000 Inhabitants = 2,5% as percentage of total population of

Prishtina• 2,5% X 2,500,000 Inhabitants in Kosovo = 62,000 cases • 62,000 cases X € 50,000 = € 3,125 bln (frozen in property disputes awaiting

to be solved by Kosovo Courts)• € 3,125 billion = 3,5 times of Kosovo average yearly budget

• Note: calculations based partly on assumptions

National research findings

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• Findings of the report call for immediate action towards Redrafting/Amending the Property Rights Law in Kosovo to ensure future commercial development

• Only as such that Kosovo will be able to attract foreign investment, allow existing businesses to spread and grow, eliminate concerns of arbitrary abuse on business and individual level

• Nobody will become economically active if he can be cheated out of the fruits of their efforts.

• Every entrepreneur needs safe climate for reinvestment

Justification of need for action

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• Two possible solutions:

1. Do nothing

or

2. Redraft/Amend Property Rights Law and enforce it as a matter of utmost importance

What are the solutions ?

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ADVANTAGES:

• No costs involved

DISADVANTAGES:

• Lack of commercial development• Lack of domestic and foreign investment and reinvestment• Inability to privatize socially owned Enterprises inherited from the socialist

economy• Frozen assets due to unclear ownership• Lack of confidence to enter in the housing market• Potential for unrest due to frustration of segments of society

1. Do nothing

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ADVANTAGES:

• Report analysed the state of Property Rights Law in Kosovo• Sudden increase in the property transactions• New capital circulating the market• New investments by domestic investors • New investments by foreign investors • Increased mortgage facilities• Added security to property first-time buyers• Opens the gates to EU accession• Creating a acceptable climate for loans from international financial

institutions• Decrease lending risk for Banks and other financial institutions thus

enabling businesses and others cheaper credit due to lower interest rates• Initiation of expropriations throughout the country

2. Redraft/Amend Property Rights Law

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DISADVANTAGES:

• Cost of hiring specialized consultants to draft the Law• Increased cost of enforcing the Law (Police labor intensive)• Necessity to increase wages for Court staff and judges in order to avoid

potential corruption• Increased costs associated with training of Legal Representatives, Judges

and other involved legal professions• Expropriations throughout the country – can provoke potential disputes,

grievances among and between various groups of interest (potential unrest from workers whom consider certain companies their own)

2. Redraft/Amend Property Rights Law

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Political willingness and commitment required from:

• Prime Ministers Office• Ministry of Justice• Ministry of Spatial Planning• Ministry of Trade and Industry• Municipalities• Cadastre Agency• Courts• Law Enforcement Agencies• International Institutions active in Kosovo (EULEX, USAID, EC (ECLO), ICO,

IMF, ECB, WB) etc

Who should be involved

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Implementation Timelines

2009

Tasks/Timeline Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Tender preparation

Tender Advert

Tender selection procedures

Signing of Contract

Works: Research, Draft

2010

Tasks/Timeline Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Works: Research, Draft

Implementation: Training, Educating

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Cost • The approximate cost of implementation plan €5 – €5.5 million

Funding

• Can be fully funded from Kosovo Budget• Can be funded partly by Kosovo Budget and partly by donations from

International Institutions operating in Kosovo (IPA – Twining and TAIEX instruments of EC)

Cost and Funds

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• Because the Kosovo budget is so tight, other important projects may be taken out of the agenda

• Another consequence of going ahead with this project may be the future increase in property taxes

• If the draft is going to clarify the status of un-privatized socially owned enterprises and consequently they are put up for privatization, as previous experience shows it may cause social unrest

Unintended Consequences

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• Implementing a Property Rights Law has its advantages and disadvantages, however, advantages by far outweigh the disadvantages

• The solution to implement Property Rights Law rather than do nothing is a better option by far – this allows Kosovo to get out of status quo in this matter

• Although there are unintended consequences of drafting and implementing the Property Rights Law, benefits of this option exceed the benefits of doing nothing by all means

• THEREFORE – ACTION IS NEEDED NOW

Conclusion

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In the name of Group 5, I thank you for listening to this presentation. We hope you will support us in our calls to act upon this issue as a matter of utmost importance.

We are now ready to answer any questions that you may have...

Group 5, in alphabetical order:

1. Bekim Jakupi2. Besart Qerimi 3. Kaltrina Sela4. Pleurat Sejdiu

And for the end