News archive - From Donor Support to Sustainability of Business Clusters: Challenges and Perspective

Through the financial support of international donors, Kosovo (under UNSCR1244) has achieved great success in accelerating private sector growth by making business clusters work. Mainly donor driven assistance helped the Kosovo economy to promote productive investment and to integrate into regional trade. As a consequence, value-added goods and services were produced in Kosovo (under UNSCR1244) for internal or external consumption and new sustainable employment opportunities have emerged. However, plenty of work remains to be done in order to exploit the full potential of business clusters.

Kosovo’s economy is facing challenges in its competitiveness. Imports are approximately ten times the value of exports. Several attempts have been made (mainly donor driven) through various interventions in order to support economic activities that can spur exports or at least contribute to import substitution. Products which are being imported in volume, and which could be produced in Kosovo (under UNSCR1244) by producers of the same or similar products, represent significant domestic market opportunities. These products and business activities should be identified and supported in order to help these sectors to gain competitiveness. Business clusters can be one approach to contribute to Kosovo’s competitiveness.

Among others, business clusters helped to address the current production process, the costs of production, product standards, necessary improvements to compete with imported products and a marketing program to persuade Kosovars to buy domestic products.
Business clusters in Kosovo (under UNSCR1244) are of recent origin. They began to operate a few years ago, mainly driven by the support of international donors such as USAID (“Kosovo Cluster Business Support Project”), TAM and “Horticultural Promotion, Kosovo”. These international development donor institutions have cooperated very effectively working in similar areas.
These interventions supported the increase of competitiveness of targeted clusters by promoting private sector driven market initiatives, enhancing the institutional capacity for competitiveness, structuring a results-oriented, sustainable public-private competitiveness dialogue and supporting the development of an enabling environment for broad-based economic growth through expanded trade relationships between firms.
At the firm level, programmatic interventions were focused on increasing sales and employment aiming at long-term growth of small and medium sized enterprises (SMEs) in three main business clusters: livestock (dairy/beef/poultry/feed), fruit/vegetables and construction materials industries. One interesting example of these interventions at the firm level is assistance to a single leader firm or a firm with the potential to impact the greater subsector. Firm-level efforts have not only generated substantial numbers of sales and jobs, but have also helped to generate substantial downstream or secondary impact. Business clusters also effectively increased the capacity of enterprises to conduct business and help make the policy environment more conducive to business growth. Moreover, clusters also helped to strengthen the capability of business associations and for-profit business services to better support their members and advocate for needed change.
The intervention had a huge impact on reducing dependence on imports by promoting increased competitiveness within the clusters, and on developing an improved business operating environment. Statistics suggest an increase in sales of more than 70% over the baseline among targeted enterprises which operated within the business cluster and an improved productivity more than 15%.
Challenges for Business Clusters
Businesses within clusters are in their infant phase of development. These businesses have been influenced by number factors such as unfair competition, inadequate access or unfavourable terms and conditions for loans, limited knowledge in the field.
In almost all sectors in which business clusters operate, the development has been impeded by difficulties with raising favourable financial sources and ineffective government policies, such as law enforcement. Numerous new laws and regulations have been passed in Kosovo (under UNSCR1244) in the past five years. Unfortunately, too often these laws have not been effectively implemented and enforced. Moreover, inertia, departmental reluctance, a lack of capacity or a lack of resources contribute to delaying an effective implementation and to increased costs of doing business.
Although successful private businesses within these clusters are now entering the next stage, there is a need for more creativity and innovation and a need for providing more knowledge-oriented services through clusters. Several companies entered a phase where they need to penetrate and expand external markets. The Kosovo’s market as a small economy has rather limited possibilities to support their growth. Supporting business clusters can help leading companies to increase their potential for exporting. The good news is that donors consider business clusters as a priority in their development agendas. However, expanding business operations to other markets of company leaders in cluster, quality control and certification becomes a prerequisite for their success. Regarding the future sustainability of business, clusters depended largely on government efforts to implement laws and install fair competition.

Author: Besnik A. Krasniqi

Geographical focus
  • Kosovo*
Related organisations

Entry created by Ines Marinkovic on May 30, 2011
Modified on June 3, 2011