TIRANA, April 12 – The Albanian economy hit a 9-year high of about 3.8 percent in 2017, but economists say the country’s GDP needs to grow by at least twice higher in order to produce tangible welfare for the overwhelming majority of Albanians.
“Despite some positive changes during the past decade, Albania is still part of those countries with exclusive growth, meaning that the number of economic stakeholders who contribute to GDP growth is still low compared to the total economic stakeholders and as a result even the ‘lion’s share’ of economic growth goes almost entirely in favor of these stakeholders, triggering huge gaps in income and economic and financial benefits,” says economist Adrian Civici.
Civici, who earlier served as a member of the central bank’s supervisory board, says about 80 to 85 percent of economic growth in Albania originates from less than 20 percent of economic stakeholders and as a result 80 to 85 percent of its benefits go in favor of this small group.
“In countries with all-inclusive growth there are much fairer ratios in the contribution of economic stakeholders to the growth structure and benefits from it. This is one of the major challenges facing Albania’s future economic and development policies,” says Civici.
Growth in annual household consumption ranged from 0.13 percent in 2012 to 2.86 percent in 2017 at a time when the country’s GDP growth recovered from 1.4 to 3.8 percent during the same period, considerably below the average 6 percent GDP growth estimated to bring tangible welfare to Albanian households, according to data published by state statistical institute, INSTAT.
“Unfortunately in this 27-year period we still like to call a transition period, Albania reflects a poor link between GDP and employment. Employment has grown slower than the GDP which means that key sectors contributing to the GDP have grown and developed, or invested and expanded by failing to achieve the same pace of employment. In many reports by the World Bank or other institutions, this fact has been underlined several times as one of the flaws of Albania’s economic policies and the way of using public investment of FDI,” says Civici.
Albania’s official unemployment rate stands at 13.5 percent and youth unemployment at about a quarter, in figures that have been on a downward trend in the past four years when the country faced a new wave of migration, mainly in ungrounded asylum-seeking in rich EU countries.
Albania’s inequality gap widened in 2016 as the richest 10 percent of households spent 2.5 times more than the overwhelming 90 percent of Albanians, an annual survey conducted by state statistical institute, INSTAT, has found.
Meanwhile, only 6 percent of savers owns about half of total bank deposits of €8.5 billion.
“In my opinion, economic growth in the past few years at 3.5 to 4 percent has been positive and the region’s highest, but taking into account the country’s economic and social development, Albania needs a multi-year sustainable growth at 6 to 8 percent so that its positive effects are evident in the living standards, consumption level, welfare for marginalized social groups and above all for the consolidation of macroeconomic indicators and the increase in public investment,” says Civici.
“Secondly, there is no solution yet to the switch to a more qualitative all-inclusive growth with a focus on high tech and innovation. It is imperative to increase the number of economic and territorial stakeholders to the GDP formation. Another important element is also the attraction of foreign investment and the development of local industrial and agricultural manufacturing sectors,” he adds.
The Albanian government has recently cut the corporate income tax on software production companies by 10 percent to 5 percent in a bid to attract ICT investors and create much-needed youth employment at home, a considerable part of which relies on call centers. Tax incentives have also been offered in the key tourism sector for luxury investment.
PPP monopolies, inefficient FDI
Economy expert Zef Preà§i says economic developments in the past five years have been hindered by what he calls legal monopolies in the form of public private partnerships in vital public services including health, education and transport as well as offshore investment in strategic assets such as oil and mining which are being aggressively exploited with negative environmental and economic consequences at a time when what the state budget benefits from it is quite minimal.
The Albanian government plans to expand its PPP projects with an ambitious €1 billion program in the next four years to upgrade road, education and health infrastructure in a project which has drawn criticism by the IMF due to risks of further increasing public debt through accumulated unpaid bills to concessionaires.
“Another characteristic of this development that in fact it does not bring economic growth and the targeted macro-economic stability is also the fact that involvement of foreign capital is only related to the exploitation of the country’s strategic natural assets and the relatively cheap labor force,” says Preà§i.
About half of Albania’s total stock of €6.5 billion FDI is focused on the oil and mining industry and hydropower and natural gas as well as the processing industry relying on garment and footwear, a sector that produces Albania’s top exports but relies on cheap labor costs, according to Albania’s central bank.
“The Albanian economy continues to remain a kind of post-colonial type of economy and its growth does not create opportunities to expand the number of new jobs and increase the labor participation of young and qualified workers and increase salaries. That is also the main explanation for the country’s abandonment by hundreds of thousands of people during the past four to five years,” says Zef Preà§i, an economist who heads the Albanian Center for Economic Research.
According to him, the Albanian economy, although in an upward trend cannot absorb the country’s labor force and unemployment among educated youngsters is twice higher compared to the country’s average.
“Studies and reports by international institutions and our analysis on the business and investment climate in the country show that problems related to land ownership and the fulfilment of contractual obligations are among the most serious investment issues in the country,” says Preà§i.
“In the case of the Albanian economy, beyond the achievement of the 2000-2008 economic growth or in the de-nationalization of the economy inherited by the communist regime, unfortunately even after three decades from the early 1990s political changes, basic factors for a sustainable economic growth such as the protection of property rights and the rigorous fulfilment of contractual obligations remain problematic,” he adds.
