TIRANA, Oct. 17 – Albania climbed several steps in the 2018 Global Competitiveness report to rank 76th out of 140 global economies and find itself as the region’s third best performer in a rating that is held back by weak institutions, poor infrastructure, ICT adoption and innovation capability and a small market size.
The findings are unveiled in the latest Global Competitiveness report measuring national competitiveness defined as the set of institutions, policies and factors that determine the level of productivity.
The report published annually by the World Economic Forum, a Switzerland-based think tank, shows Albania improved its ranking by 4 steps compared to last year’s 80th out of 135 countries outperforming Macedonia and Bosnia and Herzegovina, but lagging behind Serbia and Montenegro.
The regional ranking is topped by Serbia, the region’s largest economy that ranks 65th, followed by tourism-reliant Montenegro 71th, Albania 76th, Macedonia 84th and Bosnia and Herzegovina 91st.
Tracking performance on 12 pillars of competitiveness, the report shows Albania’s competitiveness is mostly hampered by a small market size, a poor financial system negatively affected by a declining but still high level of non-performing loans and low rates of insurance premiums as a percentage of GDP.
Infrastructure also ranks Albania 100th out of 140 global economies due to ongoing problems with road connectivity, an almost inexistent train service, a single international airport, poor access to water supply and a high level of electric power distribution losses.
However, the country surprisingly ranks the top global performer in the electrification rate as a percentage of population, a process that Albania concluded under communism in the early 1970s, but the outdated grid in most of the country now in emergency need of replacement and contributing to about a quarter of electricity fed into the grid being lost either due to technical losses or thefts.
Public debt at around 70 percent of the GDP, a high level for Albania’s stage of development which the government is targeting to bring down to 60 percent of the GDP by 2021, places the country 97th in macroeconomic stability.
High levels of organized crime, poor reliability of police services, lack of an independent judiciary, poor freedom of the press and high levels of corruption rank Albania 68th in the institutions pillar.
Albania is already vetting judges and prosecutors for their wealth and professionalism as part of a judiciary reform aimed at tackling highly perceived corruption in a key sector that hampers rule of law and the business climate.
“Weak institutions—defined as including security, property rights, social capital, checks and balances, transparency and ethics, public-sector performance and corporate governance—continue to hinder competitiveness, development and well-being in many countries,” says the report.
Albania’s best performance is in the labor market pillar ranking 34th out of 140 countries with a good pay and productivity, top ease of hiring foreign labor but a labor tax rate of 18.8 percent that ranks the country 86th.
Health, skills, business dynamism, product market rank Albania from 45th to 58th due to life expectancy of 67.8 years, five days needed to start a business and good services and trade openness.
Albania, however, ranks 91th in innovation capability, measuring the extent to which a country’s environment encourages collaboration, connectivity, creativity, diversity and confrontation across different visions and angles and the capacity to turn ideas into new goods and services.
Research and development at only a modest 0.2 percent of the GDP and poor quality of research institutions hamper Albania’s ranking in innovation, which the report says requires stable conditions such as well-established institutions, extensive ICT adoption, domestic market competition and a favorable education system—and suggests these factors as priorities for governments in low-income economies that are looking to innovation for employment growth.
Overcoming barriers
The World Economic Forum report shows all economies must invest in broader measures of competitiveness today to sustain growth and income in the future.
“Enhancing the fundamentals of competitiveness today will improve resilience to shocks. Building economic resilience through competitiveness is more important than ever in today’s volatile context, with a wide range of vulnerabilities, technological change, geopolitical tensions and potential flash points around the world,” says the report.
A survey conducted as part of last year’s 2017-2018 competitiveness report shows tax rates and corruption topped business concerns for doing business in Albania for the third year in a row.
The European Commission has also identified a series of ongoing obstacles to Albania’s growth and competitiveness and urged the EU aspirant Western Balkan country to strengthen its fiscal consolidation efforts in order to bring public debt to 60 percent of the GDP by 2021.
“Structural obstacles to Albania’s growth and competitiveness include still unclear land ownership and insufficient enforcement of property rights, a high level (though decreasing) of informality and corruption despite progress achieved through judicial reform, an excessive regulatory burden and unpredictability in the judiciary system, which act as a discouragement to both foreign and domestic investment,” says the European Commission in a recent report.
Albania lost seven places to rank 65th among 190 economies in the 2018 Doing Business report, lagging behind almost all regional competitors which made considerable progress over the past year, according to a World Bank report.
Foreign investors complain a higher tax burden compared to regional countries applying flat tax regimes of about 10 percent makes Albania less competitive in terms of investment. In addition, high levels of corruption, the long-standing issue of unclear property titles and an inefficient judiciary are perceived as weakness to boosting much-needed investment in the country despite Albania’s geographical advantage compared to other Western Balkan countries.
