Since achieving its independence in 2008, the Republic of Kosovo has made progress toward stability and development. The once conflict-torn nation has been transitioning, albeit gradually, to a country that stands firmly for “stronger democracy, greater freedom, and growing economic potential.” In facilitating Kosovo’s ongoing economic transformation, the U.S. should encourage the country’s embrace of greater economic freedom and support its pursuit of secure, modern, and affordable energy supplies.
Kosovo: Young Democracy Moving Toward a Market Economy
The U.S. was one of the first countries to recognize Kosovo’s independence (doing so on February 18, 2008). Since then, the U.S. has urged other countries to extend diplomatic recognition to Kosovo. During his visit to Kosovo in May 2009, Vice President Joe Biden unambiguously remarked that the “success of an independent Kosovo” is a U.S. “priority” and that Kosovo’s multi-ethnic democracy and irreversible independence is “a force for regional stability.” Since gaining its independence, Kosovo has been one of only four countries in Europe that has recorded positive growth rates every year. Kosovo’s economic growth reached 3.6 percent in 2015 and is estimated to remain at that level in 2016.
This year, Kosovo’s economic freedom was assessed for the first time in The Heritage Foundation/Wall Street Journal’s Index of Economic Freedom, a data-driven annual global policy guide. With its economic freedom classified as “moderately free,” Kosovo stands in the upper middle ranking of 178 countries graded in the Index. In addition to opening its borders to trade and investment, Kosovo has undertaken a number of structural reforms and made “significant progress” on strengthening its basic legal and institutional frameworks. Kosovo’s adherence to prudent and conservative fiscal targets has sustained the country’s macroeconomic stability.
In addition, Kosovo’s evolving bilateral economic relationship with the U.S. should reinforce the country’s ongoing economic transition to a market economy, further strengthened by the recent designation of Kosovo as a new Millennium Challenge Corporation compact partner. Kosovo is now invited to develop project proposals for U.S. grant agreements that must present a strong case for private-sector-led entrepreneurial growth.
Securing Energy Supplies: Key to Ensuring Kosovo’s Economic Growth
Despite progress, Kosovo’s overall economic development has been notably disadvantaged by the lack of a reliable, affordable, and modern supply of energy. Reforming and modernizing the energy sector is a top priority for Kosovo, whose economic growth has been hamstrung by frequent power cuts and an exceptionally high number of energy shortages. Entrepreneurs and potential investors identify the unreliable energy supply and poor access to electricity as a major obstacle to their day-to-day operations and a severe constraint to business expansion.
Indeed, the high frequency of power outages and the poor condition of existing plants have hurt the livelihood of the people of Kosovo. Currently, the country relies on two old coal power plants for electricity supply, one of which (named Kosovo A) is an antiquated Cold War–era model that has contributed significantly to the degradation of air quality and has negatively affected the health of nearby Kosovars. To meet Kosovo’s immediate and long-term energy needs, meaningful and practical solutions must be implemented without delay.
Kosovo’s Strong Case for Building a New, Modern Coal Plant
Kosovo is pursuing a comprehensive strategy to overhaul its energy sector that meets both its economic and environmental objectives. The strategy includes decommissioning the antiquated Kosovo A power plant by 2017, refurbishing a second existing power plant, building a new power plant, and developing renewable energy sources.
The centerpiece of the government’s energy strategy has been to build a new power plant. A modern plan would provide a clean source of affordable energy that is locally available and abundant. Indeed, Kosovo has the world’s fifth-largest reserve of lignite coal. Unfortunately, plans to build a modern coal plant to replace the soon-to-be-decommissioned, outdated power plant, Kosovo A, have been caught up in the international debate about global warming.
Particularly, in light of the World Bank’s pending decision on Kosovo’s requested partial-risk guarantee for the proposed coal plant project, some so-called environmental groups have called for the withdrawal of the Bank’s support. Incidentally, modernizing the Kosovo power plant is the only coal project in the development bank’s pipeline. The urgent and tangible needs of Kosovars, whose health is threatened from air pollution generated by the old power plant and whose economic well-being is hampered by unreliable power, seems to have become a secondary issue to environmental activists. Kosovo should not be denied the ability to develop and utilize its abundant, reliable, and affordable natural energy source of coal.
America Can Help
Kosovo’s proposed plan to build a modern coal power plant needs to move forward, and America can help. During a December 2015 press conference with Kosovar Prime Minister Isa Mustafa, Secretary of State John Kerry appropriately highlighted the “new partnership with an American company called ContourGlobal to replace the Kosovo A power plant with a cleaner, more efficient [coal] plant.” In fact, the U.S. should exercise its environmental leadership more explicitly by urging the World Bank to move Kosovo’s coal plant modernization forward so that the people of the newly independent young democracy can benefit from a clean and efficient source of reliable energy without any further delay.
Securing affordable, reliable, and widely available energy is essential to unlocking opportunity and prosperity. Ultimately, free people and free markets are the proven engine of superior environmental stewardship. Implementing the coal plant modernization would result in meaningful environmental improvement in Kosovo, not only by reducing harmful air pollutants but also by undergirding greater economic growth, which enables people to better steward their environment.
—Anthony B. Kim is Research Manager of the Index of Economic Freedom and Senior Policy Analyst for Economic Freedom in the Center for Trade and Economics, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation. Katie Tubb is a Policy Analyst in the Thomas A. Roe Institute for Economic Policy Studies, of the Institute for Economic Freedom and Opportunity.