4. PRIVATE ECONOMY

4.1. THE DEVELOPMENT OF PRIVATE ECONOMY

An elaboration of the problems of Kosova's private economy development is important for the following facts:

The private economy of Kosova is a fundamental factor of population's survival under very difficult conditions for the development of economic activities in Kosova, as a consequence of the unsolved issue of Kosova,
In present conditions, the private economy showed a vitality, verifying that the development of entrepreneurship in Kosova has great chances for success,
The development of Kosova should, first of all, be based on free private initiative, in developing managerial skills, affirmation of the role of entrepreneurs in society and in the development of entrepreneurship as a new development philosophy,
The development of free private initiative and entrepreneurship stimulates an intensive interaction with the development of democracy, open economy and civic society.

4.1.1 TRADITION OF PRIVATE ECONOMY

The organization of economic activities in Kosova before 1950 was based on family economies. Family business was concentrated in agriculture, cattle raising, and handicrafts in the conditions of a very primitive infrastructure. Natural products, traditional artisans and small manufacturers dominated in the production activities. The artisans and craftsmen were in service of such a structure of economy and were represented by traditional services, such as carpenters, leather craftsmen, blacksmiths’ etc. There existed a small group of merchants operating not farther than Tirana, Thessaloniki and Istanbul. This situation was characteristic for a typical agricultural country as it was Kosova in the eve of the Second World War. Technological progress initiated by Industrial Revolution had quite a small impact in economic life of Kosova.

Patriarchal organization of family economies in Kosova has a long tradition. It is strictly based on the definition of role, jobs, duties and responsibilities among family members with the domination of authority, words and orders of patter family heads. The role of men and women was also defined within family, especially in large families.

Despite many changes, in some farms still exist some traditional elements of family economies. After World War Two, according to state/social ownership and socialist concepts in economic system of former Yugoslavia, private economy was limited in agricultural family economies, small stores of greengrocers, small restaurants and handicrafts stores. The collectivization and nationalization of ownership in Yugoslavia was not complete as it was in other socialist countries. The role of private sector in former Yugoslavia was limited and inferior. The success in development was measured by the increasing of share of state/social sector in GDP. The overall social situation and the measures of economic policy destimulated the private sector. The only trends of modernization belong to individual agricultural family economies that supplied with the necessary equipment.

During the 80s, the so-called "small economy" became popular, whereby the private initiative would have the most significant role. Because of an overall institutional environment, the situation didn't change.

Taking into account the above-mentioned factors, the reason of decreasing private sector's share in GDP from about 40% that was in the beginning of the 50s, to about 20% in the end of 80s can be easily explained (SYK-89). The investments in private sector also decreased continually. Their proportion in total investments falls from 28% during the end of 50s to 16% in the beginning of 80s. The limitations of individual private initiative and small utilization of private sector potentials for productive and developing purposes can be illustrated by the structure of investments in private sector. The savings of population and their assets were engaged about 75-80% in housing construction, 12-15% in agriculture, about 3% in handicrafts and the rest in tourism and transport. Such a structure of investments expresses all defects of economic policy and of economic system in former Yugoslavia, a constitutive part of which was also Kosova.

In spite of all these obstacles, compared to other CEE countries, in former Yugoslavia there existed more autonomy for enterprises, decentralization and a higher influence of market, a certain level of liberalization of international economic relations and openness towards world market impulses. Elements of entrepreneurship were not totally out of the economic system of former Yugoslavia. That was a very important factor for a successful start in the development of private initiative and entrepreneurship in the beginning of 90s. But this comparative advantage has not been utilized due to the aggravation of political situation as described in the previous chapter.

4.1.2. THE DEVELOPMENT OF PRIVATE ECONOMY AFTER 1989

After 1989, in terms of reforms in former Yugoslavia, it became possible to found private enterprises, mixed enterprises, joint-stock companies with foreign partners. In that period, private economy in Kosova was represented, except family economies in agriculture and handicrafts, by 52 contracted enterprises, 20 handicraft cooperatives and 17 other cooperatives handycraft stores. In the beginning of 1990, the trend of establishing private enterprises was very impressive.

The data about private enterprises testify that the growth dynamics of the number of private enterprises was high in the period of 1991-1993, when the number of private enterprises increased for about 5.000 enterprises a year, whereas from 1994 this number was between 16.371-16.815. This can be taken as a sign of stagnation in development of private initiative, as ilustrated by the diagram.

An important element of private economy are the personal stores, which numbered 19.252 in Kosova in 1995, where the sphere of commerce (5.992 stores) and handicrafts (5.664) were dominating. To this belong also agricultural family economies (over 120.000).

Such a dynamics of private initiative development was manifested by a continually increasing of importance of private economy in overall economic activities of Kosova. This makes the role of private economy higher and higher as well as the increasing of awareness about its importance. Its share in GDP is illustrate in figure.

The share of private economy in GDP in the end of 1995 was around 50%. This is an evidently higher share compared to Montenegro (32.6%) and Serbia (36.5%), and similar to the share of the private sector in GDP of Macedonia, Georgia, Slovenia and Bulgaria. However, this proportion does not always have to express the power of private sector in an economy. Thus, for example, private sector has almost the same share in GDP of the Czech Republic and Albania, but private economy in these countries have qualitative differences between them.

The increasing of the proportion of private economy in GDP of Kosova is a consequence of some factors, such as:

The collapse of state and public sector because of deep economic crisis and
Vitality of private sector.

The development of private economy in Kosova has had great importance in the creation of new work places, mostly for workers that had lost their jobs. Thus, it can be estimated that in private sector of economy (excluding agricultural and family economies) were 70.000-80.000 people employed. Therefore, it can be concluded that in enterprises and in private stores about 20% of active population are employed.

4.1.3. THE INFLUENCING FACTORS OF DEVELOPMENT OF PRIVATE ECONOMY IN KOSOVA

Relying on "official" statistical data and analyses from polling of 300 private companies, it is possible to identify the key factors that stimulated and those that obstructed the development of private economy.

Stimulating factors are:

an increasing awareness that the perspective should be based on private initiative in order to stimulate individuals to utilize their resources,
created experience; a considerable number of entrepreneurs have been showing vitality and a relatively successful work even in very unfavorable conditions,
natural resources for development of private economy, especially for agribusiness and certain industrial activities,
human resources for development: young population, with relatively satisfactory level of education, especially in conditions of organizing additional education for business.

Obstructive factors are those that mainly deal with:

current political, economic and social situation, manifested in a drastic decrease of economic activities. (See previous chapter)
institutional environment, which in Kosova’s case, is constituted by an installed power with a repressive apparatus. Our research and analyses testify that there are many limiting factors that belong to the institutional sphere and current political situation (71.5% of polled entrepreneurs), as an obstacle for investing activities and relations with foreign partners. The repressive apparatus manifests itself with very frequent control, the main purpose of which was punishing entrepreneurs (about 60% of controls are considered incorrect and usually end up with fines). Such an environment stimulates speculative behavior and conserves existing situation hindering thus the opening of perspective for reforms and development perspective.
the lack of any kind of organized financial support for development of private enterprises. The development of private economy in Kosova represents a unique example. It is based on financial resources of entrepreneurs without any bank support and the support of other financial organizations (investment funds, guarantee funds etc.). Only 11.3% of polled enterprises have used credits for overcoming short-term operative difficulties, but not for investment activities.

The first two factors have been hindering the business of private enterprises as illustrated by the decrease of volume of turnover and by decreasing of the number of private enterprises. These factors act because the private economy in Kosova is not prepared and organized to relativize these negative impacts coming from institutional environment. On the contrary, many weaknesses in organization and functioning of private economy of Kosova create conditions for even more negative impacts of such environment.

These problems can be mainly systematized in:

Non-application of modern management
Technical organization weaknesses
The lack of organizations and associations for lobying for cooperation and for the protection of private business interests

The application of concepts and methods of a successful management is neglected, especially in some important sectors:

in the definition of development concept and strategy for meeting of objectives,
in non-performance of the concept of modern marketing,
in weaknesses in organization and utilization of information systems.

Our research verifies the assumptions that most of entrepreneurs do not have a more elaborated concept for work, in the form of business plan or definition of business strategy by any other method. Intuition is the method which entrepreneurs mainly rely on. Even the founding of enterprises, in most cases, is done with no elaborated concept and they were registered for more activities. There is no specialization for certain activities. As a consequence, we have such a structure of private economy where commercial enterprises dominate with over 70%. Except this, from the number of registered enterprises, only about 50% have an ongoing activity. Even the investment activities are done without any previous investment studies and analyses. In a word, the enterprises’ leadership does not feel the market pressure and the necessity for implementation of up-to-date business concepts. This must be a result of everyday problems, the lack of information and organization.

If we follow the fact that 300 polled enterprises are taken as a model of private economy, then derives that the qualifying structure of leadership is not so bad, as about 68% of them have high or superior education. Nearly 38% are economists and 25% engineers.

The concept of marketing also has not had any greater experience. There is still no professional market research. Only a small number of enterprises (8%) have created a regular practice in utilizing of promotion activities (advertisement and personal selling). According to the poll, the target market and the objective of activities and selling strategy is the market of Kosova (80%), and only 15% of total sales is realized in Serbia and Montenegro, whereas 5% in other countries.

Although from the poll and other analyses it can derive that the computerisation of business activities is being intensified (around 66% of enterprises have one or more PCs), yet this is not too much connected with the support of managerial activities. Thus, the application of computers is concentrated on financial evidences rather than in other activities. Possibilities for mutual communication and with foreign partners as well as the utilization of data base about stock markets through computer networks is being utilized very little (only 3% are connected to Internet).

Technical organization weaknesses are expressed by an inadequate organization of enterprises and particularly of operative activities that are connected with prompt financial evidence, timely information for changes in laws and other documents that change the business conditions, and which have material implications. Our research documents that most of entrepreneurs are informed for law changes from their friends and partners. Also the personnel policy is not directed adequately wheather in the case of personnel hiring or for its education inside or outside the organization.
The activity of entrepreneurs’ associations has been neglected for a long time. After the establishing of Businessmen Association of Kosova and its engagement in the function of interests of its members, this problem could gradually be overcome.