Utilization of natural resources and minimally processed goods in Kosovo

The Ministry of Industry, Entrepreneurship, Trade and Innovation is the main public institution responsible for supporting Kosovo’s industrial development, business competitiveness, entrepreneurship, innovation, trade policy, and export-oriented growth. Through this assignment, the Ministry aimed to better understand how Kosovo could use its natural resources and minimally processed goods to generate higher Manufacturing Value Added, reduce import dependence, and strengthen export competitiveness.

This study was prepared by Civitta, in partnership with REX Consulting, within the framework of the Sustainable and Inclusive Growth in Kosovo project, funded by the Grand Duchy of Luxembourg and implemented by the Ministry and LuxDev. The authors of the publication are Gerd Meier zu Koecker, Ermal Lubishtani, Mimoza Mirashi, and Alketa Buçaj.

The client operates in a highly strategic national policy area. Kosovo’s manufacturing sector is central to long-term economic transformation, but the country continues to face a large trade deficit and limited domestic value creation. The study therefore supported the Ministry with evidence, product prioritisation, and policy recommendations that could guide future industrial support measures.

Kosovo’s key challenge was not the availability of resources, but the limited ability to generate higher domestic value added from them. While the country possesses agricultural products, forestry resources, industrial capabilities, and semi-processed goods, many are exported with limited processing, while higher-value finished products continue to be imported.

This challenge is reflected in Kosovo’s economic structure. Manufacturing Value Added remained at around 16% of GDP, below the 18-22% range observed in comparable economies, while the goods trade deficit exceeded 47% of GDP during 2022-2024, increasing from €4.2 billion to nearly €4.9 billion.

The Ministry needed evidence-based answers to several strategic questions:

• Which product groups offer the greatest potential for higher domestic value added?
• Where can imports be realistically substituted through local production or processing?
• Which sectors have the capacity to scale and compete internationally?
• Which products demonstrate the strongest export potential?
• What policy measures are required to support industrial upgrading?

Addressing these questions was complex because Kosovo’s manufacturing sector is dominated by SMEs facing constraints related to finance, technology, certification, skills, and supplier networks, limiting their ability to move into higher-value production.

The Ministry therefore required an evidence-based prioritisation framework to identify the most promising product groups and translate the findings into targeted policy actions for industrial upgrading, import substitution, and export growth.

Civitta applied a structured, evidence-based methodology to identify manufacturing product groups with the strongest potential to increase domestic value added, reduce import dependency, and strengthen export competitiveness.

The analysis combined trade data, market assessment, and sector expertise to move from a broad universe of manufacturing products to a focused set of high-potential opportunities. Rather than relying solely on export or import volumes, the study assessed whether Kosovo possessed the industrial capabilities, resource base, market access, and scalability required for sustainable growth.

Key assessment criteria included:

• Import substitution potential and trade dependency;
• Export competitiveness and access to regional and international markets;
• Manufacturing Value Added potential through processing, design, branding, certification, and product upgrading;
• Domestic resource anchoring and linkages to local supply chains;
• Scalability and market demand; and
• Policy feasibility, including the availability of support measures related to finance, skills, innovation, certification, and export promotion.

A distinctive feature of the assignment was the development of a prioritisation toolkit incorporating indicators such as Revealed Comparative Advantage, Import Dependency Ratio, export growth, market demand, scalability, trade access, and value-addition potential. The toolkit provides the Ministry with a practical framework that can be applied in future industrial policy and investment planning exercises.

Based on this analysis, the study identified three priority product groups with the strongest upgrading potential:

• Advanced Building Joinery
• Agro-Processed Products
• Wood-Based Products

Each priority group was subsequently assessed in detail, including market opportunities, constraints, export prospects, investment requirements, and policy support measures needed to accelerate growth.

The study provided the Ministry with an evidence-based framework for identifying manufacturing segments with the greatest potential to increase domestic value added, reduce import dependency, and strengthen export competitiveness. Through a structured prioritisation process, three product groups emerged as the most promising opportunities for industrial upgrading in Kosovo.

• Advanced Building Joinery

The analysis identified advanced building joinery, including energy-efficient doors, windows, façades, and related components, as one of Kosovo’s most competitive manufacturing segments. The sector demonstrated strong export potential, opportunities for import substitution, and the ability to generate higher value through fabrication, engineering, assembly, and certification. Key constraints included limited access to modern equipment, technical expertise, certification services, and long-term investment finance.

• Agro-Processed Products

Agro-processing was identified as a strategic opportunity to increase value creation across Kosovo’s agricultural sector. Product categories such as processed foods, medicinal and aromatic plants, essential oils, teas, and wine offer significant potential for branding, processing, and export development. The study highlighted opportunities to strengthen links between farmers, processors, and exporters while addressing challenges related to fragmented supply chains, certification, food safety compliance, and processing infrastructure.

• Wood-Based Products

The study also identified wood-based products, including furniture, interior systems, parquet flooring, and prefabricated timber components, as a high-potential sector for upgrading. Kosovo already possesses a capable manufacturing base, but greater value can be captured through improved design, finishing, certification, and entry into higher-value market segments. Key barriers include limited design capacity, certification challenges, inconsistent timber supply, and restricted access to modern production technologies.

• Policy Impact

Beyond identifying priority sectors, the study developed a portfolio of policy recommendations covering skills development, innovation support, supplier networks, export promotion, conformity assessment systems, and investment support for technology upgrading. As a result, the Ministry received a practical roadmap for strengthening Kosovo’s manufacturing sector, together with a reusable prioritisation framework that can guide future industrial policy, investment planning, and sector development initiatives.

The study demonstrated that Kosovo’s greatest industrial development opportunity lies in capturing more value from existing resources, capabilities, and production activities. Rather than relying solely on the emergence of new industries, the country can increase Manufacturing Value Added by upgrading existing sectors through improved processing, product development, certification, design, and export-oriented production.

A second key finding was that import substitution and export competitiveness are closely interconnected. Firms that can meet the quality, reliability, and certification requirements needed to replace imported products are also better positioned to compete in regional and international markets.

The study also highlighted the importance of targeted support for SMEs, which continue to face practical barriers related to technology, skills, certification, finance, and supply chain coordination. Addressing these constraints is essential for enabling firms to move into higher-value market segments.

By combining trade analysis, competitiveness assessment, sector expertise, and policy design, Civitta developed a practical framework that helped the Ministry identify priority product groups and translate analytical findings into actionable policy measures.

The methodology provides a replicable approach that can be applied across sectors and countries to support value chain development, industrial upgrading, import substitution, and export growth.