A Balkan byway to a big land deal

11 February, 2016

Written by:
  • Sean Parramore
A Balkan byway to a big land deal

 In 1963, the economist Albert O. Hirschman noted that, in Latin America, many believed that progressive change had prerequisites. Reformers tended to insist that progressive change could only be realised by overcoming certain prerequisites, often with foreign donor advice. Revolutionaries had an easy time ridiculing the reformers’ progressive measures, which were “openly and avowedly antagonistic” towards the status quo, arguing that “a basic transformation of existing power relationships is a prerequisite to adopting and enforcing any measure that threatens the interests and privileges of the ruling class” (p.252).

This idea of prerequisites appears to dominate the Balkans today. Take Kosovo. It is evident in Pristina, where protestors suggest that the only way to address the land’s ills is by forcing the resignation of a ‘corrupted’ government. It is evident among academic observers of Balkan politics – who have come to note the perverse effects of EU rule of law cooperation with ostensible reformers and alleged criminals (p.337). And it seems evident in Pristina’s policy-making circles, where the locus of disagreement seems to be whether it is just political stability or also a fully functional rule of law that form preconditions for attracting FDI.

Hirschman stressed that insistence on prerequisites can be myopic. Citizens, policy-makers and observers may miss cases where society “can begin to move forward as it is, in spite of what it is and because of what it us” through “reformmongering” – that is, the contriving of ostensibly impossible reforms (1963, 5-7).

The Brezovica deal, the largest foreign direct investment in real estate in Kosovo’s history, is such a case. It shows how strategic actors may circumvent entrenched obstacles to progressive change, and how some of these have hidden positive aspects that unexpectedly nurture progressive change.

The property rights of the socially-owned Brezovica ski resort in the Serb-dominated (but ethnically mixed) south Kosovar municipality of Strpce have been bitterly disputed since 1999. INEX, a Belgrade based company, continued to operate the resort and denied the UN-led privatization effort’s authority. The slopes are of such quality that they were a back-up location for the Sarajevo 1984 Winter Olympics, and recognized by the OSCE as one of two potential “crown jewels” of privatization.

The principal obstacle to a deal to reallocate Brezovica’s Olympic land to private investors was that Serbs in Strpce fear an Albanian land grab. Despite the persistent lack of investment, crumbling infrastructure, and informal settlement, Serbian governments, INEX and Strpce municipality remained united in undermining any attempt to reallocate Brezovica’s Olympic land for private exploitation until 2008.  After years of failure, the UN special representative concluded that Brezovica could not be developed without first resolving Kosovo’s status issues.

Kosovo became independent at the moment when FDI flows collapsed (as they did regionally)(p.32). In the case of Brezovica, the Government of Kosovo (GoK) came to realise that if it wanted to draw in investors interested in its untapped economic potential, then it needed to break with persistent post-war trends of corruption, ethnic contestation over imprecisely defined property and weak contract enforcement – and show that Kosovo is a reliable place to invest.

The GoK learnt that the key to do this was to create a coalition of reformmongers, which included the Serb mayor of Strpce. In 2009 Bratislav Nikolic had won the first Pristina-organized municipal elections in which Strpce’s Serbs participated – and had begun cooperating with Pristina, rather than just with Belgrade (from where Strpce has received support for i.a. health and education).

In 2011, the GoK created the Inter-Ministerial Steering Committee (ISC), a body dedicated to enable a big land deal in Brezovica. It gave this body of ministers authority to conduct a Public-Private Partnership (PPP) – not a privatization – in Brezovica. The mayor of Strpce received veto-power in this body, which arguably made him the most powerful Serb politician south of the Ibar. At the same time, he was accountable to Strpce’s citizens controlling his power via the ballot paper.

Nikolic’s political fate, and that of his fellow citizens appeared linked to an eleventh hour reversal of the decay of Brezovica. The reality of persistent post-war Serb migration spelled doom for his Serb electorate. This has alarmed Serbia’s prime minister Vucic (“please do not sell your homes”), who depends on Nikolic to maintain a Serb majority in Strpce. Working with Pristina to secure a deal was a comparatively low price to pay.

Meanwhile, the EU had learnt from Serbia’s intransigence over Brezovica. Effectively, if unintentionally, the EU suspended the privatization effort that had been initiated by the UN by funding a private ‘master plan’ for Brezovica from 2009 to 2012.  The ‘master plan’ proposed to temporarily avoid dealing with messy property rights in the old resort by building a new one. Even if it was ultimately (if discretely) rejected by the ISC, it bought valuable time for the ISC to clarify the area’s property rights, streamline construction-permitting rules, address environmental concerns, and to improve PPP governance and practice.

As Serbia continued to cast suspicion about the true motivations of the emerging Pristina-led Brezovica deal (suggesting that if it were to happen, it would be illegal), its antagonism unexpectedly turned out to be a blessing in disguise: it raised the pressure on the ISC to ensure that a potential deal would be transparent and lawful.

After what the international community called “an inclusive, transparent bidding process”, the GoK signed a 99-year lease of Brezovica’s Olympic land worth 409 million euros with a French-Andorran consortium in April 2015.  Despite the continuing legal challenge by Serbia/INEX, uncertainty regarding the investment and political stability, the Brezovica deal demonstrates the Hirschmaneque possibility of reformmongering, and that a fully functioning rule of law is not a prerequisite to attract “serious” foreign direct investment (FDI).

Written by:
  • Sean Parramore Sean Parramore is a PhD Candidate at Queen Mary University of London. This post is based on his field research conducted in Kosovo from May to October 2015. He uses case studies from Kosovo and Bosnia-Herzegovina to investigate how reforms enable a formal real estate market and disincentivise corruption, taking a specific focus on the role of the EU. He was recently interviewed about his research in Bosnia-Herzegovina in Oslobodjenje.
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