Dominic Swire in Pristina -

Investment is set to come flooding into tiny Kosovo as international donors pledged €1.2bn over the next three years to help the newly declared state emerge from its troubled past. However, while Kosovo is attracting the attention of an increasing number of inquisitive business leaders, Pristina's new administration will need to tackle some monumental challenges if it's to simply achieve the goal of becoming a viable state.

Almost 40 countries were represented at the July 11 donor conference organized by the European Commission, with the EU pledging the single largest amount of funds totaling €500m. The US stumped up the second-largest sum of €256m. "This is a great success for my country and its citizens. The conference marks a new chapter for the economic development of Kosovo," Kosovo's Prime Minister Hashim Thaci told the press.

Since its constitution was signed on June 15, Kosovo is going all out on a charm offensive to raise desperately needed cash to enable the newly declared state to stand on its own legs. Just days before the conference in Brussels, Kosovo held its first major business and investment summit that had Pristina's crumbling Grand Hotel packed to the brim.

Five stars

It's not clear who awarded the Grand Hotel the five stars it proudly displays at the top of its battered façade, but whoever it was clearly overlooked the lack of air conditioning, toilet doors with no locks and cracked paving outside. The building serves as a symbol of a region that has been devoid of any major investment for decades. Yet the lack of creature comforts did little to dampen the interest of the hordes of business leaders who had travelled to Pristina to see what was happening - or about to happen - in the world's newest capital.

During a welcoming address by Minister of Economy and Finance Ahmet Shala, helpers rushed in and out of the swelteringly hot conference room to fetch extra chairs to seat the dozens of business people standing at the back of the packed room. The organizers say over 225 people attended the two day event - well over the 175 they had been hoping for. "For the first day, it was virtually standing-room only," said a content Michael Gold, managing director of investment company Crimson Capital, which was responsible for co-organising the event.

Ironically, however, the numbers should have been even higher - the reason they weren't illustrates another of Kosovo's major problems: transport. Most of the visitors arrived in Kosovo by plane, but so far Pristina Airport only offers flights to 10 countries. This makes travel difficult from anywhere else. Trying to book a flight from Bucharest, for example, which is just 444 kilometres away, involves either going south via Istanbul - a journey of 1,117 km - or north via Budapest - a journey of 1,204 km, almost three times the originally distance. "The influx of people on Tuesday was so high," Gold chuckles, "that it took all available seats on all flights coming in and out of Pristina from London, Vienna, Budapest, Zagreb and even flights in and out of Skopje."

Kosovo's transport problems also include an inadequate road network and a forlorn train station, itself a 10-minute drive from the city centre, which offers only one slow international route to neighbouring Skopje. And that's just transport. Other headaches for the new administration include an unemployment level of over 50%, the highest levels of poverty in the former Yugoslavia and frequent power cuts stemming from insufficient capacity to generate its own electricity.

Paradigm shift

However, following the signing of the constitution on June 15 that saw all power transferred to Kosovo's institutions, such huge problems are now starting to be seen as massive opportunities for investment, argues Minister of Economy and Finance Shala. "Up until now, we have had international investment, but there was always a kind of fog on the future of Kosovo," Shala told bne on the sidelines of the conference.

"The approval of the constitution has removed the legal and political obstacles that were in the way of investment in areas previously closed to the private sector, such as utilities, railway, energy production, the airport, post and telecom," a bullish Shala says, pointing out that the 41 countries which have so far recognized Kosovo's independence account for over 62% of global GDP - a nice spin on the fact that recognition has been going much slower than expected. Just three countries recognized Kosovo's independence in the last two months, compared with 14 in the two months prior to that.

However, the tide seems to be slowly turning, with a number of major investments already on the go in Kosovo, by far the biggest of which is Croatian firm Konstruktor's ambitious plan to build a 165-metre skyscraper in Pristina, set to become the tallest building in the Balkans. The project will cost €300m and take six years to complete. By this time, it's hoped that the weathered structure of the Grand Hotel won't have such a prominent position on Pristina's skyline.

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