TIRANA, Nov. 15 – The ‘competition policy’ for enterprises and ‘governance and enterprise restructuring’ in markets and trade are Albania’s poorest indicators in the latest 2011 EBRD Transition report. The report published this week ranked Albania’s competition policy at 2+, meaning some reduction of entry restrictions or enforcement action on dominant firms. The governance and enterprise restructuring also ranked 2+, which stands for moderately tight credit and subsidy policy, but weak enforcement of bankruptcy legislation and little action taken to strengthen competition and corporate governance.
On a 1 to 4+ scale with 1 representing little or no change from a rigid centrally planned economy and 4+ representing the standards of an industrialized market economy, the EBRD report ranked large-scale and small-scale privatization at 4-, and 4, price liberalization at 4+, and trade and foreign exchange system at 4+.
In the 2011 sector transition indicators, Albania received the worst ranking in private equity, railway, micro and small and medium sized finance, insurance and other financial services, and capital markets with individual scores ranging at +-2, meaning remaining transition gaps for market structure and institutions were classified as large and medium sized. Albania’s best performance is reported in telecommunications and sustainable energy with the size of challenges remaining small.
Earlier this year, a survey conducted jointly by the European Development Bank and the World Bank revealed that the economic crisis affected a majority of households in Albania, in late 2010. Around 60 per cent of respondents say that their households have been significantly affected, compared to a transition region average of about 50 per cent, says the report published this week which surveyed almost 39,000 households in 34 countries.”This is despite the fact that Albania was one of the few countries to maintain positive growth during the crisis. There is little variation across age groups, although the upper-income category have been less affected than those lower down the income scale,” added the report.
The impact of the global crisis is still present in many transition economies, even as recovery took hold – a recovery now under threat from a much less benign external environment.
The report highlights that the Albanian economy is still coping with the effects of the crisis. Growth rates continue to exceed those of regional peers, but a slow-down is evident in 2011, reflecting contagion effects from key eurozone partners.
Key priorities for 2012
As key priorities for 2012 the report underlines the need for further fiscal measures for macroeconomic stabilization. It is important for Albania to keep public debt below 60 per cent of gross domestic product (GDP), and the sluggish economy may require further spending cuts to keep borrowing down.
In its latest Regional Economic Prospects, the EBRD made the most pessimistic forecast about Albania’s growth among international financial institutions, lowering the country’s GDP growth estimate to 1.9 percent for 2011 and 1 percent for 2012.
The economy is expected to slow further in 2011 and 2012, as the debt crisis in the key European markets unfolds. Negative contagion effects have so far been limited, but Albania’s close trading and investment ties to neighboring Greece and Italy may affect the real economy in the short term. The banking sector has so far remained resilient to the crisis and private sector credit growth has resumed in the past year. However, with Greek banks accounting for more than 35 per cent of total banking assets, and a high level of euro-ization in the economy, strong policy actions are required to support the banking sector.
Sales of state-owned assets should be concluded, suggest the EBRD. The completion of planned privatizations would not only bring much-needed revenue to the government, but would also signal its commitment to market-oriented reforms. This could trigger substantial foreign direct investment (FDI) inflows in the coming years..
Further privatizations are envisaged and implementation of competition laws has been strengthened, but the sale of some key companies remains stalled. In early 2011 the government announced its intention to privatize nearly 1,300 remaining (mostly small) state-owned enterprises. The main large assets for sale included Albpetrol, the country’s sole oil extraction company, which the government attempted, but failed, to sell last year. In July 2011 the selected adviser for the privatization advised a further delay in the sell-off because of unfavorable market conditions. In addition, the government is trying once again to sell its stake in the insurance company INSIG, for which two previous tenders had failed. In preparation for a new privatization attempt, the Albanian authorities removed the minimum bid requirements for INSIG at the end of June 2011, and are expected to call a new tender in the coming months. INSIG’s share of the insurance market has dropped significantly in recent years to below 10 per cent.
This Transition Report is once again concerned with the themes of crisis and transition. Like its two predecessors, the “Transition in Crisis?” (2009) and “Recovery and Reform” (2010), this report focuses on understanding both the 2008-10 crisis and its longer-term implications. It looks beyond the crisis for sources of growth that are less sensitive to changes in the external environment than the capital-inflow driven boom of the pre-crisis years. But it does so from a fresh perspective: that of households and individuals, based on a new round of the EBRD – World Bank Life in Transition Survey (LiTS), conducted in late 2010.
Albania South-Eastern Europe (Bosnia and Herzegovina, Bulgaria, Macedonia, Montenegro, Romania and Serbia
