The information and technology sector has grown exponentially in Kosovo in the past five years, mainly focusing on the provision of services to international markets. This growth has happened mainly because of two reasons: first, the labor force is cheaper compared to the European market and, second, around 70% of the population is under the age of 35 and has advanced digital skills. The mix of these two has ensured access to international markets and the provision of quality deliverables.
More than 90% of the registered IT companies incorporated in Kosovo are focused on exporting their services/products as stated above, mainly to Germany, the UK, and the US, compared to the rest of the companies that work only locally. It is estimated that the overall export of IT services consists of around 3% of the overall GDP of Kosovo, which is quite a share for a relatively new industry. The sector is quite competitive, which has ensured dynamic growth of the sector, and is one of the highest-paid industries in Kosovo.
In light of this, a large number of local companies have been targeted for mergers or acquisitions by international companies aiming to expedite their growth through investments. In our direct experience with these types of transactions over the past three years, the requests for legal support for mergers and acquisitions are increasing with each passing year.
One of the key legislative changes helping the growth of the TMT sector was for its services that are subject to export to international markets and their clients to have been excluded from VAT taxation. This has lowered the burden in terms of taxes and allowed the companies to be more competitive with the ones in the region – and they are not just offering cheaper services but also better-quality services.
In terms of the legal dynamics, Kosovo has adopted the IT Strategy – currently under revision, aiming to meet the latest developments and trends in the sector. Considering that the TMT sector is always under rapid changes and is quite valuable, the Government of Kosovo is seeking to create more flexibility and introduce measures to facilitate growth in the sector.
Further, currently as part of the Digital Agenda of the European Union, which is being implemented in the Western Balkans, the Ministry of Economy, together with other institutional stakeholders, has drafted the new Kosovo Draft Digital Agenda 2030 and the Action Plan, which is expected for approval by the Government during 2022. Regarding the draft strategy of the Digital Agenda 2030, it is reported to have five strategic objectives which include advanced and secure digital transformation (5G technologies, IoT, artificial intelligence, etc.), the digital transformation of businesses (as a cross-sectorial strategy), the digitalization of public services, developing digital skills and an innovative ecosystem, and strengthening the cybersecurity system. With these five objectives set out, the government is aiming to create an environment that is even more friendly for business development in this sector.
Regarding telecommunications, Kosovo has two mobile network operators which have been part of the market since early 2000. For a period, there was a mobile virtual network operator, which ensured a more competitive market in terms of the two bigger mobile network operators. Kosovo, even though a small market for a third mobile network operator, considered that a third MNO in the market would ensure more innovation and better services than the ones which are currently being offered. The existence of only two mobile operators has meant that neither has been investing in innovation, especially now with the introduction of 5G technology, which still has not been tested.
The TMT sector is growing and meeting the trends and standards of international markets and, as a result, the legislative measures and governmental support are considerably high. However, there is a need to supplement the legislation that affects the TMT sector, especially in terms of foreign investments, and create more friendly, digitized governmental services that would contribute to a better ecosystem for investing in Kosovo.
By Mentor Hajdaraj, Partner, and Blerina Ramaj, Senior Associate, RPHS Law
This article was originally published in Issue 9.10 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.