TIRANA, Nov. 23 – Improving the productivity of individual firms, infrastructure investment and an emphasis on green growth can help Albania and other Western Balkan regional countries get out of the middle-income trap and establish a new sustainable growth model, London-based EBRD says in a report measuring progress among transition economies.
“There is no silver bullet – no one size-fits-all solution. By strengthening their institutions, supporting firm dynamics and innovation, integrating their firms into the global economy and investing in sustainable infrastructure, the countries of the EBRD region should be able to complete their transition to sustainable market economies,” said EBRD chief economist Sergei Guriev.
With the pre-crisis remittances, consumption and construction fuelled growth having significantly waned over the past decade, Albania’s new growth agenda has focused on new sectors such as tourism, energy, agriculture also making use of public-private partnerships.
However, GDP growth of about 1 to 3 percent in post-2008 period and expectations of about 4 percent in the next few years are still below the 6 percent growth rate the developing EU-aspirant Albanian economy needs to grow at in order to produce welfare to its citizens and bridge gaps with EU countries.
Albania’s GDP per capita of about €3,800 remained unchanged at 30 percent of the EU average for the third year in a row in 2016, according to a report by Eurostat, the statistical office of the European Union.
Albania ranked 65th among 190 economies in the latest Doing Business report, lagging behind some key regional competitors, mainly because of the high tax burden and bureaucratic procedures.
The country has also significantly improved road infrastructure over the past decade, but railway infrastructure is almost inefficient due to decades-long lack of investment and still has a sole international airport making ticket prices considerably more expensive to regional countries. The government is also recently promoting solar and wind energy investment to diversify the country’s wholly hydro-dependent domestic electricity generation.
The EBRD report shows that more than a quarter of a century after the collapse of the country’s communist regime, similarly to regional Western Balkan competitors, the Albanian economy still has some indicators representing little or no change from a rigid centrally planned economy in the corporate, energy, infrastructure and financial sectors.
On a 1 to 10 scale with 10 denoting the frontier in terms of a sustainable market economy, the Albanian economy scored an average of 5, slightly lower compared to key regional competitors in the transition scores for six qualities of a sustainable market economy that involve being competitive, well-governed, green, inclusive, resilient and integrated.
The report shows that firms in Albania still face major constraints in relation to electricity with losses of about 3 percent of output owing to electricity outages, representing a significant burden.
The London-based financial institution suggests key priorities for Albania’s 2018 agenda should focus on stepping up EU-oriented reforms, further advancing business environment and power sector reforms.
“It is critical for Albania’s long-term prosperity that the momentum in the EU approximation is preserved and accelerated and that everything is done in the areas of public administration reform and rule of law (among other areas) to meet EU requirements for the opening up of accession talks,” says the EBRD.
“The campaign against informality has yielded important results but extra efforts are needed to tackle deep-rooted problems such as getting electricity, registering property and enforcing contracts,” it adds.
The EBRD expects the Albanian economy to grow by 3.7 percent over 2017-2018 driven by some major energy-related investment, but warns significant downside risks associated with the embedded structural weaknesses in public administration and infrastructure, as well as vulnerability to external shocks in the Eurozone, where Italy and Greece are Albania’s main trading partners.
The EBRD forecast is significantly lower compared to the Albanian government’s optimistic scenario of growth recovering to 3.9 percent in 2017 and picking up to 4.2 percent next year when some major energy-related projects such as TAP and the Devoll HPP are completed.
