In the context of a highly divided and disrupted Europe, Kosovo continues to fight for its recognition as an independent country. With a GDP of c. US$ 10 billion and an active public sector, the Government has set up a working group for the establishment of a sovereign fund before 2025. We talked with Emanuel Bajra about the working group and rationale for a SWF.

[GSWF] Since February 2008, 100+ countries have recognized Kosovo as an independent country. Is the set-up of the SFRK contingent upon UN recognition?

[SFRK] It is not, because the set-up of the SWF itself is a political process but it is completely separate from the country’s political challenges and the pursuit of the recognition by the United Nations. We do not expect any challenge from the Government or from the opposition in terms of setting up our Sovereign Wealth Fund. We are also very alert with what’s happening in Ukraine – you can’t ignore the geopolitical element.

[GSWF] How will the SFRK ensure good governance when the government is still challenged by institutional weaknesses?

[SFRK] This question is at the heart of our main preoccupations. We are suggesting a classic set up with the Parliament setting up a non-executive board formed by four to six independent members and that could potentially include international advisors. The fund will then be led by the executive management and the operational management for the national enterprises, with a relatively small team. The CEO could be recruited externally to bring best practices from global capital markets and sovereign wealth funds. The design of SFRK’s governance and accountability is still evolving but we are confident it will have no political influence.

[GSWF] What is Kosovo’s main motivation and source of wealth to set up a SWF, and what will be its main mandate?

[SFRK] For the past 22 years since the UN undertook the first wave of privatizations in Kosovo, the majority of assets have been mispriced and undervalued. However, things changed in 2008, when the Privatization Agency of Kosovo (PAK) managed to accrue EUR 1 billion and we have since then gone through a whole restructuring exercise. Today, we are left with about EUR 300 million resulting from that wave of spinoffs and privatizations, which is sitting at the Central Bank and is designated as the initial capital for the SFRK. The objective will be to form a strategic fund that will manage some of the major state-owned enterprises of Kosovo.

[GSWF] What assets are expected to be transferred and what industries is the SFRK expected to focus on?

[SFRK] We have identified 592 national enterprises since the privatisation process began, of which 13 are structured and six are profit-making. We are targeting these six assets to be transferred under SFRK, including Trepča Mines (mining), Kosovo Energy Corporation or KEK (energy), Post of Kosovo (post services), Telecom of Kosovo or Vala (telecommunications), KESCO (infrastructure) and Kosovo Railways (transportation). We have found synergies to create smaller companies that will increase their profitability and will eventually position them for IPOs and further opportunities. We will always hold less than 51% of these companies, with the remaining part being open to private investors. Kosovo has a young and highly educated population that will generate opportunities in the tech sector, too.

[GSWF] Will the SWF source extra capital and look at co-investments, borrowing, or divestments to generate funds?

[SFRK] This is an ongoing debate, and our suggestion to the government is to target a portfolio for SFRK that is 80% development, and 20% investments. However, the final plans will only be defined once we have the CEO onboard and can study all possible alternatives. We have started talks with several SWFs from Greece, Slovenia, Turkey, and Kazakhstan, among others.

[GSWF] Does SFRK have any specific role model and/or an ideal size in terms of assets under management?

[SFRK] We and our consultants see similarities with Samruk-Kazyna of Kazakhstan, which is ironic as they have not recognized Kosovo as a country yet. It is difficult for us to replicate the Singaporean or even Turkish model when we have no significant experience. Our intent for SFRK is to intensify and solidify the financial services and mineral sector (lithium, gold, chrome, lignite) so that we can trade as a country. I believe the SWF is the only entity that can support this transformation and it will be shaped according to market conditions.

[GSWF] What timeline are you expecting for SFRK’s establishment? What do you need to happen at political or economic level?

[SFRK] At the moment we are at the draft stage, with internal discussions. We are expecting for the concept document to go through Parliament within 2-3 months, after which the first couple of entities should be ready and in solid form to be transferred to the SFRK. We have given ourselves a generous deadline of 2025, but we are hoping to be up and running before that.

[GSWF] Will the SFRK eventually pursue international partnerships?

[SFRK] Once the fund is established, we can pursue two different routes: either target specific SWFs to discuss partnerships, or go on road shows – but this will in any case come after we have absorbed the six major assets and ensure the profitability and financial sustainability of our portfolio.

Related funds GrowthFund Samruk Kazyna TVF