Economic challenges of population decline

The preliminary results of the population census, published last week by the Kosovo Statistics Agency, show a contraction of the resident population of almost nine percent within the last thirteen years. Of the 1,739,825 inhabitants that Kosovo had in 2011, today it has only 1,586,659. At the same time, the population is aging; at around 35, the average age is almost five years higher than in 2011.

The shrinking of the population is not happening only in us. During the last 12 years, more than 600 thousand inhabitants have left Albania, reducing the resident population by 429 thousand inhabitants, or 15 percent. As a result of migration and the drop in the birth rate, Serbia has lost over 610 thousand inhabitants in the same period, while by 2050 it is expected to shrink to around 5,8 million, or by 24 percent. The decline in the birth rate at the global level is believed to be the main reason that the world population will begin to decrease by the middle of this century. While countries in Africa and Southeast Asia still have a high fertility rate of more than 2.1 births per woman, it has fallen below the level of reproduction in the US, Europe and, more recently, China.

Both in Albania and in Kosovo, there are two main reasons for the shrinking of the population: migration and the drop in the birth rate. According to a preliminary estimate, the Kosovar diaspora numbers about 600 thousand people, while migration is not stopping. The birth rate is estimated to have fallen from 6,95 in 1950 to 1,51 in 2023. In Albania, the situation is no better.

Social and economic effects

The shrinking and aging of the population, this ongoing trend, has serious implications, which, if not addressed with countermeasures, risk damaging social stability and economic development.

The main factor of the contraction in Kosovo and Albania is the migration of the youth, the most vital part of the population. Therefore, the first and immediate impact is observed in the labor market. Businesses have been facing labor shortages for years, especially in agriculture, construction and hospitality. In the public sector, this impact is particularly noticeable in health and education. Labor shortage not only puts businesses before the challenge of maintaining productivity, but also reduces economic activity because it affects both the supply and demand side. The less inhabitants, the less labor force, the less demand for goods and services and the less investment.

The combination of a shrinking and aging population also leads to an increase in the number of pensioners, increasing the burden on the pension and health systems, while public revenues fall because there is less of the active tax-paying population. In countries with low economic development, the tax base decreases much more significantly as the population decreases. The smaller this base, the greater the risk of increasing taxes on the resident population, which worsens its economic situation. There are also implications in the field of defense and security. A smaller and older population makes it difficult to develop defense and law enforcement capacities because there are fewer young people to serve in these areas. Finally, the infrastructure created for a larger population, such as schools, hospitals, roads, etc. it may become unusable, while its maintenance costs increase.

Another serious challenge is that a shrunken population has less diversity and more groupthink, which undermines creativity and innovation and can stimulate dogma, religious extremism and authoritarian approaches.

Possible measures

There is no magic formula that allows you to get out of this vicious circle. Populist declarations or the distribution of public money as alms, without any stable mechanism and without a clear development goal, are not solutions. Such sugars produce no more than a corruption of the masses for party purposes. On the other hand, the examples of the Scandinavian countries have proven that financial incentives are ineffective. Only a good governance, which focuses on strengthening state legitimacy, providing security, equal conditions, law enforcement and good management of public money, can create the preconditions for an increase in the quality of life in the country, which is condition for mitigating migration.

Solutions must be sought within social and economic characteristics and features, reflecting the concrete current and strategic national needs. In the short term, Kosovo will continue to cover its economic deficits through the diaspora. The remittances, investments and expenses of the diaspora during the holidays, which currently make up about 30 percent of the Gross Domestic Product, will mitigate the current problem for a while. But the shelf life of this solution may be much shorter than we would like. The best solution lies in the empowerment of the private sector, which brings with it investment, well-being, stability, employment, assets and income for a stronger and more sustainable development base, and greater social equality. In our era, the private sector cannot develop without innovation. For innovation, a serious investment in education is needed, the current state of which is, to put it mildly, unacceptable.

"Digital Nomads"

Proactive economic policies should focus on reaping the fruits of the digital revolution, especially artificial intelligence, which can alleviate labor shortages and simultaneously increase productivity. Vital to this is the human factor, whose capacities cannot be raised overnight.

As an intermediate solution, it can be to stimulate the arrival of "digital nomads" by enabling talents from around the world to work in Kosovo and benefit from low taxes, good digital infrastructure, good transport links with the world, attractiveness of life nightlife, numerous festivals, low cost of living, still young population with solid digital skills, security, etc. On the other hand, the growth of supply and demand in the market can be stimulated by better integration with the regional markets, especially with those in Albania, North Macedonia and Montenegro, and by simultaneously increasing the attractiveness for foreign investments. Finally, incentives for young families, especially in relation to school day care, the provision of healthy snacks for children and a modern health system with affordable health insurance are indispensable measures. Kosovo has the last moment to decide whether it will remain a country economically dependent on the diaspora, and slowly transform into a poor retirement home, or take measures to become a modern, animated, innovative, creative and economically developed.