By Gentian Elezi
The impact of the global economic crisis has varied significantly across the world. The crisis had its beginning at the exposure of the world financial institutions to American sub-prime mortgage assets. The developments in the financial world in 2008 and 2009 did not affect directly many developing countries as their exposure to toxic assets was minimal. However, by early 2009 there were clear signs that the financial crisis had affected indirectly many transition economies of Eastern Europe.
From the beginning it was obvious that the economies of the Balkan region, such as the Albanian economy, would not escape the influence of the crisis. ACIT (Albanian Centre for Competitiveness and International Trade) with the support of the Open Society Institute in Albania published a study, which analyzes and explains the impact and consequences of the economic crisis in Albanian economy and social dimension, with particular focus to the fason industry. Alban was affected directly from the world economic depression, albeit the GDP growth rate of 3% in 2009. Since the beginning the sectors of the real economy began to experience negative effects from the slowdown of economic activity and drop in demand, fluctuation of the exchange rate and financing difficulties. The industrial sector in general and active processing sector business in particular, commerce and services, mining and refinement of minerals, started to show dropping performance indicators and augmented the pressure on the authorities for protective and supportive measures. In order to analyze and measure the effects of the crisis in this sector, ACIT developed and implemented two different questionnaires: one for business companies and the other for workers.
57% of the companies experienced a fall in value of sales in 2009 compared to the same period 2008. The situation has not improved in the Q1 2010 contrary to official figures which indicate to resurgent Albanian exports. As per profit and loss 16 % of the companies asked report to have experienced financial loss in the Q1 2010 compared to the same period 2009 while more than 35% report a decrease in financial gains.
The companies maintain that the fall in foreign demand has been the most important contributor to their fall in sales (71% of companies asked). The survey results indicate that 36% of companies asked see contractual breaches from foreign companies (34%) as another important factor affecting their sales. 29 out of 77 companies report that rising cost of production and operational costs are important in explaining the fall in sales and financial gains.
The companies have responded to the fall in sales by searching for new markets (65%) and new suppliers of raw materials (57%) and investing in new technology (54%). They maintain that the most effective measure has been the search for new markets. 40 out 47 support this while least effective seems to be reduction in workers’ wages, where 31 out of 42 say that this measure has not helped them. It seems that companies have clear ideas on what they would need their government to do. Most of the companies urge for assistance in international marketing and facilitation in finding new partners. Moreover, 43% of them answered that they would need a support from the state in terms of fiscal and financial facilitations. With particular regard to the crisis, 46% of the companies think that the government should support the with credit schemes.
Another part of the sample considers training of new workers as one of the major issues where the state should intervene with education and financial structures. 19 out 78 companies said they would need governments assistance for finding and training new workers. As it is still an unstable labour market for their field, courses and professional schools would help sensitively the consolidation of their labour market and thus permit the long term investments.
The social impact of the fall in sales in fason companies has been captured by a second survey addressed at 225 employees of this industry. The survey results show that the number of people who experienced a fall in monthly income in Q1 of 2010 almost doubled compared to 2009 amounting to 46% of the respondents. For those workers that experienced a fall income, the average monthly income fell by more than 17% compared to 2008. The social impact of the crisis seems to be severe for this category of workers.
It is striking to see that most workers have faced falling living standards in the past year. Only a minority of 9% say that they have experienced increased living standards while 20% say that there have been no changes in their living standards. However, 71% report to have experienced either a little or a considerable fall in their livings standards. When asked if they had experienced a fall in their living standards so that they can hardly meet daily expenses for food and electricity a staggering 42% replied positively to this question.
According to the survey results more than 82% of the workers think that the reason that they are facing a fall in their living standards is mainly due to the increases in the prices of daily consumable goods like food. Also when asked if their living standards had fallen due to the rise in public services like electricity and water 82.7% replied that this had gravely affected their living standards. Another factor contributing to the fall in living standards is the rise in the costs of public health services where 61% thought this to be an issue.
When asked if they had resorted to using the banking sector to ask for consumer credit, 85% replied negatively and only 15% said that they had asked for credit. However more 137 workers or 60% relied that they had felt the need for the consumable credit but factors like high interest rates and refusal from the banks have not allowed them to access the banking market. When asked if they had looked for alternative sources of income 28.3% replied that they had asked for family loan and 33% said that they had bought daily consumable goods by “debtors list”.
It is interesting to note that the when asked if they saw emigration as a potential source a soothing the living standards more than 73% replied positively. While 66.4% answered that they would emigrate to EU countries if visa liberalisation would come into force.
The results from this report show that the effects of the global economic crisis have been transmitted to the Albanian economy. This industry employees more than 80,000 workers and the crisis in the fason industry is likely to have a multiplier effect on the rest of the economy. The current economic crisis has greatly exposed the reliance of the fason industry on foreign demand. The government should engage with the industry to support them in international marketing efforts to actively search for new potential markets. This measure would also fend off any regional competition and allow the Albanian fason industry to maintain its market position. The diversification of the market should be supported both by government institutions and other non governmental agencies. The fason industry uses old technology which greatly reduced their production effectiveness and therefore output capacities. The representatives of the fason industry express the banks unwillingness to provide them credit for new investment as a major hurdle. They require from the government to provide them with credit at favourable rates. According to them the Albanian financial market is very costly. Financial facilitation schemes should be adopted in order to improve businesses access to finance and thus increase their performance and productivity. As it came out from our survey, fason companies have had troubles and disputes with their foreign partners. These disputes not only are very burdensome but also they lack of legislative and administrative adequate support. The Albanian government should regulate the contractual disputes that the Albanian companies might have with their foreign partners and build institutions that can deal with them.
The government should also carry out the necessary studies for the social effects of the economic downturn in Albania. This would enable it to properly channel financial aid for the most affected people. As the survey results shows, a considerable number of the people asked faced difficulties in meeting everyday expenditure. The programs that aim poverty reduction should be integrated in a more comprehensive and adequate strategy in order to face easily the times of crisis and help these groups to improve their standards of living.
* The Author is Executive Director
Albanian Center of International Trade
