Annex_11.pdf

PARTNERSHIPS FOR

DEVELOPMENT

QUARTERLY REPORT

FEBRUARY – APRIL 2018

May 30, 2018

This report was produced for review by the United States Agency for International Development. It was prepared by USAID Partnerships for Development implemented by Chemonics International, Prime Contractor, and Crimson Capital Corp. and Policy and Management Consulting Group, Subcontractors.

PARTNERSHIPS FOR DEVELOPMENT

QUARTERLY REPORT

FEBRUARY – APRIL 2018

Consortium Members: Crimson Capital Corp.

Policy and Management Consulting Group

Award No.: AID-OAA-I-12-00035

Task Order No.: AID-167-TO-14-00002

Contracting Officer’s Representative: Dardane Peja

Chief of Party: Hajdar Korbi

DISCLAIMER

The author’s views expressed in this publication do not necessarily reflect the views of the United

States Agency for International Development or the United States Government.

CONTENTS

EXECUTIVE SUMMARY

PROJECT INTRODUCTION

COMPONENT ONE: BUSINESS ENVIRONMENT IMPROVEMENT

COMPONENT TWO: IMPROVED IMPLEMENTATION OF CONSTRUCTION REFORMS

COMPONENT THREE: ENHANCED MACRO-ECONOMIC STABILITY AND PUBLIC

FINANCIAL MANAGEMENT (PFM) AT THE CENTRAL AND LOCAL LEVELS

PARTNERSHIPS FOR DEVELOPMENT RESULTS FRAMEWORK

DEVELOPMENT OBJECTIVE 2: INCREASED INVESTMENT AND PRIVATE SECTOR

EMPLOYMENT

WORK PLAN PROGRESS REPORT

COMPONENT ONE: BUSINESS ENVIRONMENT IMPROVEMENT

NEXT STEPS

CHALLENGES AND IMPLEMENTATION ISSUES

COORDINATION

COMPONENT TWO: IMPROVED IMPLEMENTATION OF CONSTRUCTION REFORMS

NEXT STEPS

CHALLENGES AND IMPLEMENTATION ISSUES

COORDINATION

COMPONENT THREE: ENHANCED MACRO-ECONOMIC STABILITY AND PUBLIC

FINANCIAL MANAGEMENT (PFM) AT THE CENTRAL AND LOCAL LEVELS

NEXT STEPS

CHALLENGES AND IMPLEMENTATION ISSUES

COORDINATION

ANNEX I: FINANCIAL REPORTING

Grants and Local Subcontracts Expenditures

International Subcontract Expenditures

Financial Allocation and LOE Summary

USAID Partnerships for Development Quarterly Report February – April 2018 4

ACRONYMS

AI Administrative Instruction

BD MoF Budget Department

CDCS USAID Kosovo Country Development Cooperation Strategy 2014 –2018

CIT Corporate Income Tax

DO Development Objective

DRP Detailed Regulatory Plans

DSA Debt Sustainability Analysis

EC European Commission

EU European Union GCS Government Coordination Secretariat

GDP Gross Domestic Product

GIZ German Federal Enterprise for International Cooperation

GoK Government of Kosovo

IMF International Monetary Fund

IR Intermediate Result

IT Information Technology

JSC Joint Stock Companies

JSSP USAID Justice System Strengthening Program

KBRA MTI Kosovo Business Registration Agency

KCA Kosovo Cadastral Agency

KPI Key Performance Indicators

KSA Kosovo Standardization Agency

MDP Municipal Development Plan

MESP Ministry of Environment and Spatial Planning

MLGA Ministry of Local Government Administration

MoF Ministry of Finance

MTEF Medium-Term Expenditure Framework

MTI Ministry of Trade and Industry

MU Ministry of Finance Macroeconomic Unit

MZM Municipal Zoning Map

OPM Office of the Prime Minister

OSS One Stop Shop for Construction Permits

PBMS Performance Based Management System

PFD USAID Partnerships for Development

PFM Public Financial Management

PRP USAID Property Rights Project

PTS Permit Tracking System Module

SAA Stabilization Association Agreement

SEE Southeast Europe

SIDA Swedish International Development Agency

SPAK Spatial Planning Application for Kosovo

STATA Statistical Software Package

SHPRK Social Housing and Property Rights Kosovo

TA Technical Assistance

TAK Tax Administration of Kosovo

USAID Partnerships for Development Quarterly Report February – April 2018 5

TEAM USAID Transparent, Effective, and Accountable Municipalities Project

UN United Nation

USAID United States Agency for International Development

USG United States Government

VAT Value Added Tax

WB World Bank

WBDB World Bank Doing Business

ZMK Zoning Map of Kosovo

USAID Partnerships for Development Quarterly Report February – April 2018 6

EXECUTIVE SUMMARY

USAID Partnerships for Development (PFD) supports Government of Kosovo (GoK) institutions at the central and local level to create a business-friendly and competitive business environment that will attract foreign investments, while at the same time maintaining macro-economic stability. The Project has the following objectives: (1) improve the business environment, (2) improve implementation of construction reforms, and (3) enhance the country’s macro-economic stability and Public Financial

Management (PFM) at the central and local level.

This report covers the period from February through April 2018. During this period, the Project completed several important reform-driven activities and made further progress towards achieving its overall goals and objectives, as elaborated further below.

In Component One, the most important success was the adoption by the Assembly of Kosovo of the Draft Law on Business Organizations in its second reading, which approximates Kosovo’s legislation in this area with European Union (EU) legislation as required by the Stabilization and

Association Agreement (SAA), further streamlines business registration procedures, increases protections for minority shareholders, and strengthens disclosures of conflicts of interest in corporations. Additionally, through Project support, the following progress was made:

• The Training Module on Legislative Drafting and Publication at the Local Level and

Completion of Pilot Trainings were completed, and over 151 officers from the

Ministry of Local Government Administration (MLGA) and municipalities attended the pilot trainings;

• The Report on Basic Performance Indicators for Business Registration Services for the

First Quarter of 2018 was completed and published on the Kosovo Business

Registration Agency (KBRA) website;

• The coordinating structures for the World Bank Doing Business (WBDB) reforms were reactivated, and the WBDB working groups completed all Reform

Memorandums, with outlines of short, medium, and long-term reform activities;

• The Ministry of Trade and Industry (MTI) Doing Business Task Force (Task Force), working closely with the WBDB Working Groups, completed and sent reports on achievements made in six indicators to the WBDB Team in Washington, DC.

In Component Two, the most important achievement was completion of the Functional Analysis for the Implementation of the new Draft Law on Constructions Without Permit, providing a framework and guidance for consolidation of institutional capacities needed for implementation of the new law after its adoption. Another important accomplishment during the reporting period was the resumption of the review process of the Draft Law on Treating Constructions Without Permit by the Assembly of

Kosovo. Additionally, through Project support, the following progress was made:

• The Minister of the Ministry of Environment and Spatial Planning (MESP) issued a decision to draft the Zoning Map of Kosovo (ZMK), which marks the official beginning of the process for developing this important national planning document;

• The Draft Infographic Handbook for Obtaining Terms of Construction and

Construction Permits was completed;

USAID Partnerships for Development Quarterly Report February – April 2018 7

• The MESP Minister approved the Administrative Instruction (AI) on the Elements and

Basic Requirements for the Design, Implementation, and Monitoring of Detailed

Regulatory Plans;

• The Roadmap on the Functionalization of EN Eurocode Construction Standards was completed and submitted to MESP and the Eurocode Technical Committee.

In Component Three, the most important achievement was the Project-supported implementation of fiscal rules in the GoK Medium-Term Expenditure Framework

(MTEF) 2019-2021. Additionally, through Project support, the following progress was made:

• GoK revenue-planning capacities further improved through the first-time completion of an ex-post evaluation of select fiscal policy changes, specifically the revenue impact of the implementation of the SAA and Value Added Tax (VAT) law changes in 2015;

• A new draft long-term Debt Sustainability Analysis (DSA) framework for the MoF was developed;

• A government-wide consultation on fiscal priorities was organized for the first time as part of the MTEF preparation process, improving the comprehensiveness of the budget process;

• A new online tax refund tracker was developed and is expected to be launched in the coming months.

Highlights of this quarter include:

• The Draft Law on Business Organizations was adopted in its second reading by the

Assembly of Kosovo and is on track for entry into force in June 2018;

• A new online tax refund tracker was developed and is expected to be launched by the

Tax Administration of Kosovo (TAK) in the coming months;

• The Training Module on Legislative Drafting and Publication at the Local Level, and pilot trainings with over 151 officers from MLGA and municipalities were both completed;

• The Minister of MESP adopted a decision to begin drafting the ZMK;

• The Functional Analysis for the Implementation of the new Draft Law on

Constructions Without Permit was completed;

• The Project supported implementation of fiscal rules in the GoK MTEF 2019-2021;

• The International Monetary Fund (IMF) recognized Kosovo as the best performer in the southeast Europe (SEE) region for improving transparency of fiscal data publication, which came as a result of Project support to the MoF in this area;

• GoK revenue-planning capacities were further improved through the first-time completion of an ex-post evaluation of select fiscal policy changes;

• The Report on Basic Performance Indicators for Business Registration Services for the

First Quarter of 2018 was completed and published on the KBRA website;

USAID Partnerships for Development Quarterly Report February – April 2018 8

• Full coordination structures for the WBDB were reactivated, and the WBDB working groups completed all Reform Memorandums, with outlines of short, medium, and long-term reforms;

• The draft Infographic Handbook for Obtaining Terms of Construction and

Construction Permits was completed;

• The AI on the Elements and Basic Requirements for the Design, Implementation, and

Monitoring of the Detailed Regulatory Plans was approved;

• Further improvements to GoK budget classification in line with international best practice were introduced.

PROJECT INTRODUCTION

On January 31, 2014, the United States Agency for International Development (USAID) awarded

Partnerships for Development to Chemonics International Inc. and its subcontractors Crimson

Capital Corp. and Policy and Management Consulting Group.

Partnerships for Development is a 4-year and 7-month activity to (1) improve the business environment, (2) improve implementation of construction reforms, and (3) enhance macro-economic stability and public financial management at the central and local levels of Kosovo

Government.

The overall goal of the Project is to enhance the enabling environment for private sector growth and expand employment opportunities in Kosovo. Project activities build on previous USAID work in

Kosovo, including the USAID Business Enabling Environment Program, USAID Growth and Fiscal

Stability Initiative, USAID Efficient and Sustainable Tax Administration of Kosovo, and USAID

Decentralized Effective Municipalities Initiative. Additionally, activities support both continued

WBDB improvement, as well as the achievement of key GoK development priorities.

COMPONENT ONE: BUSINESS ENVIRONMENT IMPROVEMENT

Component One includes both cross-cutting national activities as well as specific business environment reforms. The cross-cutting activities address improving policy coordination, legislative drafting, and transparency at the central and local levels of government.

Component One also includes activities aimed at supporting the implementation of the SAA between

Kosovo and the EU through development and adoption of key legislation such as the Law on Business

Organizations; improving the efficiency of business registration services through regular performance monitoring; and other activities such as reform efforts centered on the WBDB Report and improved policy development and legislative drafting at the central and local levels.

COMPONENT TWO: IMPROVED IMPLEMENTATION OF

CONSTRUCTION REFORMS

Component Two provides support and assistance to MESP and, through MESP, to municipalities and other partners to continue reforms in construction permitting, spatial planning, and addressing

USAID Partnerships for Development Quarterly Report February – April 2018 9 unpermitted constructions. Building on prior USAID assistance, Component Two focuses on full implementation of the Law on Construction, the Law on Spatial Planning, and the Law on Treatment of Constructions without Permit.

The Project supports partners to build capacity at the central and local levels to streamline the construction permitting process. The Project also works with partners to streamline the process for the development of spatial plans and zoning maps based on the requirements of the Law on Spatial

Planning, and supports spatial planning data infrastructure that will allow greater public access to spatial planning data. Working closely with MESP, Component Two supports GoK priorities in legalizing previously unpermitted constructions to improve safety and increase property tax rolls.

COMPONENT THREE: ENHANCED MACRO-ECONOMIC

STABILITY AND PUBLIC FINANCIAL MANAGEMENT (PFM) AT

THE CENTRAL AND LOCAL LEVELS

Component Three includes support to the MoF, TAK, and other partners involved in PFM activities and reforms. Support is provided to advance and sustain macro-economic stability through the improvement and implementation of macro-economic policy and wider budget related PFM reforms.

The main areas of assistance include improving strategic policy-led budget management, further enhancing the quality of fiscal projections, budget transparency, supporting improved revenue generation, and assisting specific activities related with doing business improvements, as measured by the WBDB Report.

Support is also provided to GoK partners involved in designing and implementing tax policies. Better resource mobilization can create a culture of government accountability to the citizen-taxpayer, diversify and create more effective public finance, enable long-term financial commitments to citizens, and reduce dependence on aid flows. Therefore, there is a need to link public expenditure closely to revenues, particularly to domestic taxation and non-tax revenues, keeping in mind that in future years border revenues are expected to drop.

PARTNERSHIPS FOR DEVELOPMENT RESULTS

FRAMEWORK

The United States Agency for International Development | Country Development Cooperation

Strategy (CDCS) for Kosovo for 2014-2018 formulates an ambitious agenda. The United States

Government (USG) seeks a strong and effective partnership with the GoK that builds on their close relationship to address regional and global challenges. USG support focuses on:

• Building the capacity of Kosovo governing institutions;

• Strengthening the Kosovo economy; and

• Improving the education and skills of Kosovo citizens.

The CDCS is based on the implementation of three development objectives (DOs):

• Development Objective 1: Improved Rule of Law and Governance that Meet Citizens’

Needs;

USAID Partnerships for Development Quarterly Report February – April 2018 10

• Development Objective 2: Increased Investment and Private Sector Employment; and

• Development Objective 3: Enhanced Human Capital.

Partnerships for Development contributes to DO2: Increased Investment and Private Sector

Employment. Three indicators are provided to capture this DO:

1. Growth in Foreign Direct Investment;

2. Private sector as a share of Gross Domestic Product (GDP); and

3. Ratio of public-to-private sector employment.

As these indicators are a function of many variables within the Kosovo economy and market forces, direct causal attribution of Project activities to these numbers is not possible. However, the Project will indicate where Project indicators and activities are reasonably expected to impact these indicators indirectly. Also, relevant pass-through data is included in the Performance Based

Management System (PBMS) as Supplemental Indicators to provide the official information annually to

USAID from GoK sources.

Partnerships for Development activities also contribute to Intermediate Results (IR) 2.1: Improved

Economic Governance and Business Environment, Sub-IR2.1.1: Improved Fiscal Framework and Public

Financial Management, and Sub-IR2.1.2: Key Economic Reforms Implemented at the Central and Local

Levels.

IR2.1: Improved Economic Governance

1. Progress on the World Bank Doing Business Index;

2. Formal sector employment as a percentage of total employment; and

3. Number of businesses registered that submit tax declarations.

Sub-IR2.1.1: Improved Fiscal Framework and Public Financial Management

1. Government revenue (tax and non-tax), excluding foreign grants, as a percentage of

GDP; and

2. Person-hours of training completed in fiscal policy and fiscal administration as a result of USG assistance.

Sub-IR2.1.2: Key Economic Reforms Implemented at the Central and Local Levels

1. Number of municipal regulations and administrative procedures that have been simplified as a result of USG assistance;

2. Key policy, legislation, and structural reforms implemented at the central level; and

3. Person-hours of training completed in business enabling environment supported by

USG assistance.

Each of the USAID Partnerships for Development three components encompasses these dynamic activities, which are reflected within the Results Framework.

USAID Partnerships for Development Quarterly Report February – April 2018 11

DEVELOPMENT OBJECTIVE 2: INCREASED INVESTMENT AND

PRIVATE SECTOR EMPLOYMENT

Development Objective DO2 Increased Investments and Private Sector

Employment

USAID Intermediate Result IR 2.1 Improved Economic Governance and Business

Environment

USAID Sub-Intermediate IR 2.1.2 Key Economic Reforms Implemented at the

Central and Local levels

Partnerships for Development C1 Business Environment Improved

Partnerships for Development C2 Improve Implementation of

Construction Reforms

Partnerships for Development C3 Enhance Macro-Economic Stability and Public Finance Management

Facilitate Implementation By GoK Of Reforms Centered On World Bank Doing Business Report

Support Implementation of GoK Program for Treatment of Constructions Without

Permit

Improve Government of Kosovo Capacity to Manage Macroeconomic Stability

USAID Sub-Intermediate IR 2.1.1 Improved Fiscal Framework and Public Financial

Management

Support Improved Policy Development and Legislative

Drafting at MTI and Municipal level

Support Implementation of Law on Spatial Planning

Enhance National and Municipal Public Financial Management Through

Increased, Budget Transparency and Accountability

Partnerships for Development Objective Enabling Environment for Private Sector Growth and Expanded Employment Opportunities in Kosovo.

Support Improved Tax Compliance and Tax Administration

Support Implementation of Streamlined Construction Permitting Process and

Implement Actions From the Roadmap for the Adoption and Implementation of

Eurocodes

Facilitate Adoption of Draft Law on Business Organizations and Further Institutionalize

Performance Measurement Framework At KBRA

USAID Partnerships for Development Quarterly Report February – April 2018 12

WORK PLAN PROGRESS REPORT

This section provides a detailed description of Project activities supported during the reporting period, and the progress towards implementing the Work Plan of the Project in its final year.

COMPONENT ONE: BUSINESS ENVIRONMENT IMPROVEMENT

Component One continued supporting MTI and the Assembly of Kosovo during review of the Draft

Law on Business Organizations, as well as in the continuous development of capacities within KBRA to prepare and publish regular Reports on Basic Performance Indicators for Business Registration

Services.

As part of its efforts to support WBDB Reforms, Component One supported the Task Force to further strengthen the coordination structures and reactivate the WBDB working groups. In addition, Component One supported the Task Force to effectively coordinate with the WBDB Working

Groups, and to report and communicate with the WBDB team in Washington, DC.

Finally, Component One oversaw and coordinated with the Project’s grantee “Democracy Plus” and

MLGA to ensure successful implementation of the grant activity to develop a training module for legislative drafting and publication at the local level, and the associated pilot trainings.

During the reporting period, Component One also provided legal support as needed to Components

Two and Three.

C1-1: FACILITATE ADOPTION OF DRAFT LAW ON BUSINESS ORGANIZATIONS

AND FURTHER INSTITUTIONALIZE PERFORMANCE MEASUREMENT

FRAMEWORK AT KBRA

Following review and approval of the Draft Law on Business Organizations (Draft Law) by the Assembly of Kosovo Committee for Economic Development, Infrastructure, Trade, Industry, and Regional Development (Functional Committee), in accordance with the Rules of Procedure of the Assembly of Kosovo, the Draft Law was submitted for review and subsequent approval by the four Standing Committees of the Assembly of Kosovo (http://assembly-kosova.org/?cid=2,110).

However, the approval of the Standing Committee for Legislation, Mandates, Immunities, Rules of

Procedure of the Assembly and Oversight of the Anti-Corruption Agency noted that Amendment

No. 12, which proposes the establishment of gender quotas for boards of directors in Joint Stock

Companies (JSCs), may be anti-constitutional.

Subsequently, the Assembly of Kosovo reviewed and approved the Draft Law in its second reading, along with the majority of amendments proposed by members of Assembly, business associations, and civil society organizations. The importance of this Draft Law for improving the business environment was highlighted by several members of the Assembly.

One of the main points of discussion in the plenary session was Amendment No. 12. This amendment, proposed by Assembly member Mimoza Kusari-Lila, requires the establishment of a

40% quota for participation of women in JSC boards of directors, which would be increased automatically to 50% two years after the Draft Law entered into force. This issue was discussed extensively while the Draft Law was reviewed by the Assembly Committees. After consulting with

MTI and business associations, the Functional Committee, as the committee primarily responsible for the Draft Law, decided not to support this amendment due to its potential negative impact on the business environment. However, under the Rules of Procedure of the Assembly of Kosovo, members of the Assembly reserve the right to propose amendments in the plenary session.

USAID Partnerships for Development Quarterly Report February – April 2018 13

Prior to the approval of the Draft Law by the Functional Committee, at the request of MTI, the

Project conducted an analysis of JSC gender-quota practices in European countries to help MTI support the Assembly Functional Committee in taking a well-informed decision on the question of introducing such quotas. The analysis found that while the establishment of gender quotas for corporate boards of directors is required in several European countries, in all cases this only applied to listed JSCs, large JSCs (e.g., with more than 250 shareholders), or state-owned JSCs.

Despite the findings of this analysis, strong opposition of the proposed gender-quota amendment by business associations, and rejection of the same amendment by the Functional Committee, the

Assembly of Kosovo approved the Draft Law on Business Organizations, including the amendment establishing the gender quota (http://assembly-kosova.org/?cid=1,128,9429).

Following adoption of the Draft Law by the Assembly of Kosovo, several business associations, including the Chamber of Doing Business in Kosovo, the Kosovo Chamber of Commerce, and the

American Chamber of Commerce in Kosovo, reacted to the adoption of the gender-quota amendment to the Draft Law.

The Chamber of Doing Business in Kosovo sent an official letter to the President of Kosovo requesting the President not promulgate the Draft Law and instead return it to the Assembly for reconsideration of the amendment (http://indeksonline.net/oak-thacit-mos-dekretoni-ligje-ne-kundershtim-me-kushtetuten/). Similar calls were made by the Kosovo Chamber of Commerce

(http://kallxo.com/oek-planifikon-ta-coje-ne-kushtetuese-amandamentin-e-mimoza-kusarit-ne-ligjin-per-shoqerite-tregtare/) and American Chamber of Commerce in Kosovo

(http://www.koha.net/arberi/81490/oda-amerikane-nuk-perkrah-ndryshimet-ne-projektligjin-per-shoqerite-tregtare/), both of which also disputed the constitutionality of the approved amendment and indicated that, if the Draft Law is promulgated by the President, they will attempt to challenge the issue at the Constitutional Court of Kosovo.

In accordance with the Constitution and Rules of Procedure of the Assembly of Kosovo, following its adoption in second reading, the Draft Law was sent for promulgation by the President of Kosovo.

Prior to the eight-day deadline for the promulgation of the Draft Law, the President’s Office called a meeting with business associations, civil society organizations, and MTI where the only point of discussion was the gender-quota amendment. According to representatives from MTI, the business associations continued appealing to the President’s Office to not promulgate the Draft Law and instead send it back to the Assembly for revision. On the other side, several civil society organizations promoting gender equality argued for the provision to remain in the Draft Law and urged the President’s Office to promulgate the Draft Law as approved by the Assembly.

On April 4, 2018, the President decided not to promulgate the Draft Law and sent it back to the Assembly, requesting the Assembly reconsider the provisions establishing the gender quota.

The reasoning provided by the President mainly focuses on a possible violation of the constitutional provisions which state Kosovo is a free market economy, and also noted that the establishment of gender quotas by law for private sector entities is not common practice and may have a negative impact on the business environment in Kosovo (http://www.president-ksgov.net/en/news/president-thaci-does-not-decree-the-law-on-business-organizations-he-returns-it-to-the-assembly-for-review).

Following the return of the Draft Law to the Assembly of Kosovo, in accordance with Article 61 of the Rules of Procedure of the Assembly of Kosovo, the Functional Committee reviewed the decision of the President to return the Draft Law and decided with a majority of votes to support the first recommendation of the President of Kosovo to delete the provision of the Law setting the gender quota (http://www.kuvendikosoves.org/?cid=1,128,9551). The Functional Committee’s

USAID Partnerships for Development Quarterly Report February – April 2018 14 report with recommendations is anticipated to be submitted for final approval by the Assembly in a plenary session expected to be held in May 2018, where it will need 61 affirmative votes to be approved. If the report does not receive 61 affirmative votes, then the provision establishing the gender quota will remain as approved previously by the Assembly.

During the report period, the Project also supported KBRA to further develop and maintain the

Basic Performance Measurement Framework for Business Registration Services

(https://arbk.rks-gov.net/page.aspx?id=2,41).

Following the completion and publication of the

Annual Report on Basic Performance Indicators for Business Registration Services for 2017 on

KBRA’s website, the Project supported KBRA to hold a workshop with Municipal Business

Registration Centers on February 8-9, 2018, where the report was presented. KBRA used this opportunity to present the progress made to date on improving the business registration process overall to Municipal Business

Registration Centers, including progress made within the Starting a Business indicator of the WBDB Report.

At the request of KBRA, the Project also supported preparation of the draft Quarterly Report on

Basic Performance Indicators for Business Registration Services for the first quarter of 2018

(January-March). The draft report was prepared during a joint session with KBRA officers during

April 2018 and published on the KBRA website.

The Project has been working with KBRA to institutionalize this process, including creating a legal requirement for the development of the quarterly and annual performance reports as part of the new Draft Law on Business Organizations expected to enter into force June 2018.

C1-2: FACILITATE IMPLEMENTATION BY GOK OF REFORMS CENTERED ON

WORLD BANK DOING BUSINESS REPORT

The Project continued supporting the consolidation of World Bank Doing Business structures and overall coordination between the MTI Doing Business Task Force (Task Force) and WBDB ministry-level working groups. The process of establishing all WBDB working groups was completed this quarter, when MESP adopted a decision establishing the working group for the Registering

Property indicator. The establishment of all WBDB working groups by the GoK has encountered some delays, which caused the initial timeline laid out by the Task Force to shift closer to the final cut-off date of April 30, 2018, when the WBDB Team will stop accepting information for consideration in the WBDB Report 2019.

Following the establishment of all WBDB working groups, the Head of the Task Force, Mr. Gazmend

Mejzini, met with the working group heads to brief them on the current status of WBDB reforms and inform them of the April 2018 deadline for providing information for the purposes of the WBDB

Report 2019. Mr. Mejzini also requested all working groups complete and submit their Reform

Memorandums for the WBDB 2019 cycle by the end of February 2018. Representatives of the

World Bank Office in Kosovo and Project participated in the meeting.

Subsequently, the majority of WBDB working groups completed and submitted Reform

Memorandums for the WBDB 2019 cycle, and the Project supported the Task Force to review and

KBRA Workshop with Municipal Business Centers on the

Annual Report on Basic Performance Indicators

USAID Partnerships for Development Quarterly Report February – April 2018 15 summarize the inputs received. These inputs were included in the official Reform Updates submitted by the Task Force to the WBDB Team in Washington, DC, and cover a total of six indicators.

The Project also supported the Task Force to coordinate with the WBDB Team in Washington, DC, to organize a series of video conferences in which the ministry-level WBDB Working Groups will present activities from this reporting cycle, and discuss any pending issues as well as future reform activities. The video conferences are expected to be held in June 2018.

On April 17, 2018, the European Commission (EC) released the EC Annual Progress Report for

Kosovo 2018 (EC Progress Report 2018) (https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/20180417-kosovo-report.pdf). The EC Progress Report 2018 assesses the progress made by Kosovo since the previous year in a wide range of areas, including areas where the Project has been providing support over the past years such as economic, fiscal, and governance-related activities. The Report notes that significant progress has been made by the GoK in improving the business environment, as reflected by the improved ranking of Kosovo in the WBDB Report

2018. The main areas of progress noted in improving the business environment were:

• The functionalization of the online system for filing and paying VAT and social security contributions, and facilitating tax payments for businesses;

• A reduction of the time it takes to export, and a reduction of the cost of regulatory compliance to export as a result of an improved automated customs data management system, streamlining of customs clearance processes, and implementation of the Albania-Kosovo transit corridor;

• Improvements to the process for starting a business driven by a web-based business registration system and simplified process for registering employees;

• Improvements in access to credit and resolving insolvency, with the adoption of clear priority rules in bankruptcy procedures for secured creditors and introduction of a legal framework for corporate insolvency.

The EC Progress Report 2018 also calls on Kosovo institutions to take measures for adopting the new Law on Business Organizations, which will further simplify business registration procedures and introduce changes to corporate governance which strengthen the rights of minority shareholders.

However, the Report notes that despite significant progress, the main obstacles to doing business still include a weak and unaccountable administration, weak rule of law, corruption, a widespread informal economy, as well as the little progress made in clearing court backlogs of unresolved cases and missing problem analysis and justification by the Government in its policy and legislative proposals.

C1-3: SUPPORT IMPROVED POLICY DEVELOPMENT AND LEGISLATIVE

DRAFTING AT MTI AND MUNICIPAL LEVEL

The Project, through its grantee “Democracy Plus”, continued joint efforts with MLGA to improve the quality of Legislative Drafting and Publication at the Local Level. The overall objective of this grant activity is to help increase the capacities of municipal officials in legal drafting and transparency, in accordance with MLGA Regulation No. 01/2017 on the Procedure for Drafting and

Publishing Municipal Acts. This Regulation aims to improve the quality of the legislative drafting and rule-making process at the local level, where there is still significant variance in the procedures, standards, and requirements municipalities undergo while drafting and approving legal acts such as municipal charters and regulations.

USAID Partnerships for Development Quarterly Report February – April 2018 16

Activities under this grant include the development of a Training Module for Legislative Drafting and Publication (Training Module) at the local level and conducting a series of pilot trainings with municipal officials from all of Kosovo’s municipalities.

After completing an initial draft of the Training

Module, the Project’s grantee held a three-day workshop on February 7-9, 2018, with officers from the MLGA’s Department for Legal Affairs and

Monitoring of Municipalities and Department for

European Integration and Policy Coordination. The focus of this workshop was to jointly review and finalize the draft Training Module before launching pilot trainings with Kosovo municipalities. The

Training Module was completed during the workshop, after which the grantee began preparing to launch the pilot trainings.

The pilot trainings were held during March and April 2018 in seven regional centers, including

Mitrovicë/ Mitrovica, Gjakova/Djakovica, Prishtinë/Priština, Peja/Peč, Prizren, Ferizaj/Uroševac, and

Gjilan/Gnjilane. A total of 151 officers were trained during these workshops, including 15 MLGA officers who participated in the initial workshop and 136 municipal officers who participated in the regional center pilot trainings.

Outcomes and recommendations from the pilot trainings were discussed in a joint session with the

General Secretary and other representatives from

MLGA. The final version of the Training Module and a report with recommendations for future actions by MLGA is being developed by the

Project’s Grantee and expected to be submitted to the Project and MLGA in May 2018.

Following submission of the Report on Ex-Post Evaluation of the Law on Internal Trade and the Law on External Trade to MTI in 2017, the Project received a request from the Government

Coordination Secretariat in the Office of the Prime Minister (GCS-OPM), which is responsible for inter-governmental policy coordination, to share the report with them to serve as a model for similar exercises by the GoK in the future. While the Project coordinated with relevant departments from MTI for possible support on similar exercises, no additional opportunities for conducting ex-post evaluations of other legislation were identified during this quarter.

NEXT STEPS

During the next quarter, the Project will focus on tapering down activities in areas covered by

Component One. The focus of the Project will be on the following activities:

• After the entry into force of the new Law on Business Organizations, support MTI as needed to prioritize implementation actions;

• Support KBRA with the development of the Report on Basic Performance Indicators for the second quarter of 2018;

Democracy Plus Trainings with central and local level institutions on Drafting of Normative Acts in The Local Level

Gjilan/Gnjilane municipality officials attending the trainings on Legal Drafting and Publications on Normative Acts

USAID Partnerships for Development Quarterly Report February – April 2018 17

• Support the Task Force to effectively communicate with the WBDB Team in Washington, DC, including organization of video conferences for the WBDB Report 2019 cycle;

• Provide limited support to WBDB working groups in the implementation of medium-term reforms identified during the WBDB Report 2019 cycle;

• Conclude the grant activity for the development of the Training Module on Legislative

Drafting and Publication and Pilot Trainings, including completion and submission of the final version of the Module to MLGA and report with recommendations for future actions.

CHALLENGES AND IMPLEMENTATION ISSUES

Challenges in Component One continue to be of a similar nature to those faced in the past. It takes considerable effort to coordinate activities between different institutions, and often between departments within the same institution.

This is particularly a challenge as related to the WBDB reforms, where effective coordination and cooperation between institutions is imperative to push forward reforms at an increased speed.

Continued progress with WBDB reforms is also heavily dependent on continued political commitment at the highest levels of the Government.

One particular challenge encountered this quarter was continuous delays with the final adoption of the new Law on Business Organizations by the Assembly of Kosovo. The new Draft Law on Business

Organizations was a cornerstone of reform efforts for the WBDB Report 2019 cycle; however, the inability of the GoK and Assembly of Kosovo to approve the Draft Law in time for it to enter into force before the end of April 2018 may have an impact on the WBDB Report 2019 results for

Kosovo.

COORDINATION

Under its first component, the Project continued to coordinate its activities with relevant government partners, other donors, and donor projects and programs involved in the areas covered by the Project. During this quarter, the Project collaborated with several bodies within MTI (the

Cabinet of the Minister, the Legal Department, and KBRA). The Project also coordinated with the

GCS-OPM and several ministries as part of the ongoing WBDB reform activities, and with MLGA during implementation of the grant activity to develop a Training Module on Legislative Drafting and

Publication at the Local Level and associated pilot trainings.

Further, the Project worked closely with the International Finance Corporation/World Bank Office in Kosovo and Swedish International Development Cooperation Agency Project for Policy

Development and Coordination in OPM.

USAID Partnerships for Development Quarterly Report February – April 2018 18

COMPONENT TWO: IMPROVED IMPLEMENTATION OF

CONSTRUCTION REFORMS

Component Two continued supporting MESP with the reviewing process of the Draft Law for

Treatment of Constructions Without Permit in the Assembly of Kosovo, as well as with completing the draft secondary legislation needed for the implementation of the Draft Law after adoption by the

Assembly of Kosovo. To further support MESP with implementation of the new Law after its adoption, the

Project continued supporting the Functional Analysis for the Implementation of the new Law on

Treatment of Constructions without Permit, focusing on MESP and two municipalities

(Prishtinë/Priština and Graçanicë/Gračanica), The Functional Analysis was completed during this quarter, and the final report was submitted to MESP.

In the area of spatial planning, the Project supported the finalization and distribution of the

Guidebook for Drafting and Approval of Municipal Zoning Map (MZM) to municipalities, as an important document for ensuring efficient planning and use of Kosovo’s land. Furthermore, during this reporting period, the Minister of MESP signed the AI on the Elements and Basic Requirements for the Design, Implementation, and Monitoring of Detailed Regulatory Plans and the Decision for

Drafting the Zoning Map of Kosovo.

In the area of construction reform, the Draft Infographic Handbook for Obtaining Terms of

Construction and Construction Permits was finalized and submitted to MESP. Furthermore, the

Project continued supporting the process for the adoption and implementation of the construction

Eurocodes through the completion and submission of the Roadmap for Eurocode Adoption and

Implementation to MESP and the Kosovo Standardization Agency (KSA).

C2-1: SUPPORT IMPLEMENTATION OF GOK PROGRAM FOR TREATMENT OF

CONSTRUCTIONS WITHOUT PERMIT

The Project continued supporting MESP to complete the legal framework for the treatment of constructions without permit. Following the approval of the Draft Law for Treating

Constructions without Permit (Draft Law) in the first Assembly reading in January 2018, the process of reviewing the Draft Law by the Assembly of Kosovo resumed after the Committee on

Agriculture, Forestry, Rural Development, Environment, and Spatial Planning (Functional Committee) established a Working Group to review the Draft Law. This Working Group began with its work and, during the quarter, received numerous comments from stakeholders for consideration during the reviewing process. At the request of the Working Group, MESP, with Project support, began reviewing the comments, and in the coming weeks will provide the Working Group with specific feedback on the received comments.

Simultaneously, the Project supported MESP to complete the secondary legislation needed for the implementation of the Draft Law after its adoption and entry into force. The AI on Appeals

Procedures Against Decisions on Treatment of Constructions without Permit, as one of the important sub-legal acts for the legalization process, was completed during this quarter. This AI, along with other draft AIs that were completed and submitted earlier, will undergo the review and approval procedures by the respective MESP working groups after the entry into force of the Draft

Law.

To support the consolidation of institutional capacities needed for the implementation of the new

Law on Constructions without Permit after its adoption by the Assembly of Kosovo, the Project continued supporting the Functional Analysis for the Implementation of the new Law on

Treatment of Constructions without Permit (Functional Analysis), implemented by Project

USAID Partnerships for Development Quarterly Report February – April 2018 19 grantee “Social Housing and Property Rights in Kosovo” (SHPRK). During this quarter, the analysis continued with the evaluation of communication capacities at MESP and the municipalities of

Prishtinë/Priština and Graçanicë/Gračanica (the two pilot municipalities for this grant activity).

Following the completion of this phase of the analysis, SHPRK continued the Functional Analysis by consolidating the results of all stages of the process, including experiences from the previous phase of the program for the treatment of constructions without permit.

An important event organized during this quarter was the workshop with central and local level institutions, where the main findings of the

Functional Analysis to date were presented. The workshop was held on February 20, 2018, and included representatives from MESP, the Ministry of Diaspora, the Ministry of Communities and

Return, municipalities of Prishtinë/Priština and

Graçanicë/Gračanica, and the Public Housing

Enterprise of Prishtinë/Priština. The grantee presented the main findings on the capacities of

MESP and the two pilot municipalities, and received feedback from participants on the main findings of the Functional Analysis.

After completing the first draft of the Final Report of the Functional Analysis, MESP and the two pilot municipalities had the opportunity to submit additional comments and suggestions, following which the Final Report was completed by SHPRK and sent to MESP and two pilot municipalities.

The Final Report analyzes in detail the current institutional and human capacities for implementing the Draft Law, looks at lessons learned during the process so far, and provides recommendations for

MESP and municipalities to effectively implement the new Law and associated secondary legislation.

Among other things, the Final Report recommends that:

• MESP establish a new division that would solely be responsible for the legalization process and dedicate the necessary staff for effectively coordinating the process for the treatment of constructions without permit;

• MESP and municipalities coordinate the launch of an awareness campaign to ensure citizens are well informed of the requirements of the new law and benefits of legalization;

• MESP update the software for the legalization database and applications processing;

• The pilot municipalities analyze their existing capacities and allocate the necessary human resources from within the municipality;

• Municipalities streamline the procedures for handling applications for treatment of constructions without permit as per the requirements of the new Law and associated secondary legislation;

• MESP and municipalities coordinate with the MoF to ensure sufficient budget allocations are made for additional human resources and other purposes.

The Final Report is also intended to serve as a point of reference to other municipalities and

Workshop with central and local level institutions on the main findings of the functional analysis

USAID Partnerships for Development Quarterly Report February – April 2018 20 relevant ministries when reviewing and consolidating their capacities for implementing the new Law and associated secondary legislation.

As part of the ongoing support being provided to MESP on the program for the treatment of construction without permit, the Project supported MESP to define the structure of the Database and Registry for Treatment of Constructions without Permit. The Database and Registry were initially developed during the program for the treatment of constructions initiated under the former law, and are key elements of the program for the treatment of constructions without permit.

This Database has already enabled the identification and registration of unpermitted constructions, and the upgraded version is expected to facilitate the next phase of legalization, which includes receiving and processing applications.

Based on continuous discussions with MESP, the Project supported review of the Database structure based on the requirements of the new Law. The Database structure developed with Project support contains all the required attributes for registering constructions without permit (geographical, physical, ownership, etc.), attributes for processing the applications for legalization, and explanation on the relations and dependency between the attributes - optional activation and use, data formats, and data input type. In addition, the new database, once upgraded, will enable the correction of eventual errors which may have been made during the previous process. MESP intends to use the structure developed with Project support when developing and upgrading the current Database.

C2-2: SUPPORT IMPLEMENTATION OF LAW ON SPATIAL PLANNING

Following completion of the Guidelines for Drafting and Approval of Municipal Zoning

Maps at the end of Year Four, the Project supported MESP to organize a launching event with municipalities to present and distribute the guidelines. The event was held on February 7, 2018, with

33 municipalities and 112 municipal staff from the departments responsible for municipal spatial planning and land management participating. The participants exchanged their experiences on spatial planning, as well as discussed issues related to the process of initiating and drafting MZMs. In addition to the Guidelines on Drafting and

Approval of MZMs, the Guidebook on

Participatory Spatial Planning in Kosovo was also presented and distributed due to its importance for promoting meaningful public participation during the development of spatial planning documents. The Guidebook on Participatory

Spatial Planning in Kosovo was developed in previous years with Project support and contains practical advice on the techniques and methodologies for increasing public participation as well as practical tips for their implementation. The Guidelines for Drafting and Approval of Municipal Zoning

Maps were made available in the MESP website (http://mmph-rks.org/sq/Publikime/Udhezuesi-per-hartim-dhe-miratim-te-Hartes-Zonale-te-Komunes-2182).

In addition, AI No. 01/ 18 on the Elements and Basic Requirements for the Design, Implementation, and Monitoring of the Detailed Regulatory Plans (DRPs) was approved and signed by the MESP Minister. This AI is required by the Law on Spatial Planning, must be implemented at the local level during the development of detailed regulatory plans, and specifies the criteria, elements, and other guidance for municipalities during the development of DRPs.

Launching event with municipalities to present and distribute the Guidebook for Drafting and Approval of Municipal

Zoning Maps

USAID Partnerships for Development Quarterly Report February – April 2018 21

Another important milestone in spatial planning reforms was marked when the Minister of MESP, Ms.