Introduction 1.1.Background

1. Introduction

1.1.Background

The Kosovo government has recognized the strategic importance of the IT industry for economic development and structural transformation towards a knowledge-based economy. Consequently, in 2013 the government of Kosovo officially declared the IT industry a high priority sector for its economy.

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  Economic growth: Several countries such as Bulgaria, Estonia, India and Costa Rica have impressively shown the significant potential of the IT industry as a trigger for economic development, job creation and income generation. Taking into account the structure and the competitive advantage of Kosovo’s IT industry, the country has the potential to follow the example of these countries by using the IT industry as a catalyst for economic growth.
  
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  Employment creation: The positive effect of the IT industry on job creation is amplified by the fact that IT is a labour-intensive and skill-intensive industry. In the IT industry (particularly in software development), scale is achieved by qualifying and hiring more people. In terms of employment, IT sector development has two positive effects: a quantitative one by increasing the number of jobs and a qualitative one by generating employment for higher skilled people. Thus, Kosovo’s IT sector could play an important role in reducing unemployment, especially among the youth.
  
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  Export promotion: In 2013, the global market for IT outsourcing accounted for EUR 223 billion,² and this figure is projected to grow rapidly in the next couple of years, thus providing significant export growth potential for countries like Kosovo. Particularly in Northern Europe, severe skill shortages in the IT industry will translate into additional demand for IT outsourcing, largely to nearshoring destinations such as Southeast Europe. Increasing exports is especially important for Kosovo, due to its negative trade balance and comparatively small, underdeveloped domestic market. Growth of IT exports will provide a number of long-term benefits for Kosovo, such as speeding up the transformation to a knowledge-based economy through technology transfer and creating better, higher-paid jobs.
  
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  Competitiveness: A significant economic benefit of the IT industry is its positive impact on the efficiency and productivity of other industries through spill-over effects. Thus, even traditional sectors of Kosovo’s economy such as manufacturing, agriculture or tourism could improve their international competitiveness by using modern software applications and IT services. By adopting latest technologies and providing modern software applications, Kosovo IT companies are able to support the integration of small and medium enterprises (SMEs) into international markets and supply chains. Hence, IT becomes an enabler for other industries. Furthermore, the IT industry can induce growth effects in related industries through multiplier effects and provides opportunities for so-called hybrid business models, combining products with specialized services. Given the ongoing digital transformation of national economies and the emergence of the industry 4.0, IT will have a major impact on the international competitiveness of Kosovo’s economy.
  
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  Innovation & Entrepreneurship: As a cross-cutting technology, IT is a driver of product and process innovation. Furthermore, IT plays a key role within the knowledge based economy, where its strategic importance will substantially increase due to mega-trends such as the internet of things (IoT) and the so-called industry 4.0. Accordingly, IT could play a crucial role in increasing the capacity for innovation of Kosovo’s economy. In addition to that the IT sector could also serve as a catalyst for entrepreneurship and the establishment of a vibrant start-up scene. A case in point is the Kosovo Innovation Center (ICK), which impressively demonstrates the potential of the IT industry for entrepreneurship and innovation.
  
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  Branding & positioning: Promoting its national IT industry could help Kosovo further improve its international visibility and position itself as a center of digital excellence, IT entrepreneurship and innovation, following the example of small, yet highly innovative and competitive nations such as Estonia, Lithuania or Singapore. Kosovo would thereby be able to diversify its “industrial image” in terms of technology, capabilities and quality. In addition to that, the Kosovo IT industry would serve as a brand ambassador for the Kosovo economy.
  
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  Investment promotion: Emerging countries with strong national IT industries usually do better at attracting foreign direct investment (FDI). Thus, promoting the Kosovo IT industry could help boost the country’s appeal to foreign investors and attract more FDI, by improving its image, technical and skill base, and business climate.
  
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  Other strategic benefits: Improving the international competitiveness of the Kosovo IT industry would also have a positive impact on Kosovo’s economy and society at large in areas such as good governance (e-government, open government and open data), social development (information society), education and science (IT skills development, e-learning, IT R&D), health (e-health), as well as sustainable energy (e-energy).
  

The process of developing the Kosovo IT strategy has been supported by the German Agency for International Cooperation (GIZ) and the Norwegian Ministry of Foreign Affairs (NMFA).