DEVELOPMENT CHALLENGES
Since beginning its transition to democracy 15 years ago, Albania has experienced large political, institutional and socioeconomic changes. The country has had the highest economic growth of all Southeastern European countries, underpinned by rising exports and continuing improvements in productivity. GDP grew by 5.4% per year on average between 2000 and 2010. Albania graduated from “lower-middle” to “upper-middle” income status in 2010 with a GNI per capita of US$3,960, twenty times its per capita income in 1992. Albania also has a “high” Human Development Index (HDI) of 0.739 (ranking 70th of 187 countries). Moreover, the country weathered the impact of the global financial crisis rather well, sustaining positive growth though exports and domestic demand weakened. Despite these impressive achievements, Albania continues to face various development challenges.
Poverty and inequality
The poverty headcount rate decreased between 2002 and 2008 (from 25.4% to 12.4%), and this decrease has been even more dramatic in rural areas (from 39.6% to 14.6%). Extreme poverty was also reduced during this period (from 5% to 1.2%). However, there are concerns that poverty reduction has slowed due to a slowdown in the reduction of urban poverty, and regional disparities remain a daunting challenge, in particular in the north and northeast. Rural and mountainous areas have a higher poverty incidence than the rest of the country, as do Roma communities and women.
High unemployment and labour migration
Unemployment has decreased in Albania from 17% in 2002 to 12.7% in 2008. However, the financial crisis reversed this trend, with unemployment climbing to 13.4% in the first quarter of 2011. Moreover, unemployment has been historically higher for women than men. With the majority of working-age people living in rural areas, unemployment is particularly high in rural communities. Limited employment possibilities have caused migration of a vast scale, with young, well-educated and highly-trained people leaving the country in search of employment. Remittances constitute a major source of income for poor households in Albania, yet remittances declined by 10% year-on-year in the first quarter of 2011 due to the difficult economic situation in Greece and Italy, which host nearly 90% of Albanian emigrants.
Skills gap
96% of adults in Albania were literate in 2008. However, there are differences in compulsory school attendance between urban and rural regions, where infrastructure is older, facilities are poorer, and teaching staff lack training. Gender disparities are also present in the education system. The importance of education and skilled labour for economic development is well-recognized in Albania, and major and wide-ranging education reforms were initiated in 2006. However, continued efforts are required to align education programmes with labour market requirements.
Corruption and weak institutional capacity
Another key challenge to development in Albania is the insufficient institutional capacity at the central and local levels. While decentralization has great potential to improve service delivery, the pace of devolution has been slower than expected and deeper decentralization is needed. Local authorities lack the capacities to prioritize needs, to plan and mobilize resources, and to deliver services efficiently. Lack of financial resources and poor infrastructure also limits the ability of the public sector to provide basic services. Transparency and inclusiveness in public administration is inadequate, public expenditure management is weak, and civil service recruitment and disciplinary measures are incomplete. Insufficient reforms in public administration have also hampered the fight against corruption, which constitutes a serious threat to the country’s development.
KEY TRADE ISSUES
Product and market concentration with large trade deficit
Albania has been a member of the WTO since 2000; however, the EU-27 is the destination of 70% of the country’s total exports. This market concentration makes the country very vulnerable to adverse changes in its partners’ economies. The country’s exports are similarly concentrated in a small number of sectors. Apparel and footwear makes up one-third of total exports; another third is made up of mineral fuels, oil, iron and steel. In addition, the country suffers from a wide trade deficit, with the value of imports (mainly mineral fuels and high value-added goods) being nearly three times the value of exports.
Limited access to finance
Access to finance remains an obstacle to the growth of business and trade operations of SMEs. Although private transfers have returned to positive growth levels, reflecting the banking sector’s restored confidence, lending has decreased because of the financial crisis.
Underdeveloped transport and energy infrastructure
Gaps in physical infrastructure contribute to the high costs of doing business in Albania and hinder trade development. The country’s roadways are in a state of severe disrepair, particularly in mountainous areas. 95% of secondary and tertiary roads in Albania are in poor condition, resulting in entire areas being cut off from the rest of the country. Electric power generation also faces problems: while coverage of the network is virtually universal, delivery of services is unreliable with daily power outages, particularly in rural communities.
Cumbersome regulatory and business environment
In terms of “ease of doing business”, the World Bank ranks Albania 82nd of 183 economies in 2012, an upgrade from 136th place of 175 economies in 2007. However, further improvement is required to create a more favourable regulatory and business environment, in particular in property registration and tax collection.
Statistics have been compiled by the World Bank, OECD and UNECE. Information has been adopted from: the United Nations Development Assistance Framework for Albania 2006-2010; the 2008 Republic of Albania National Strategy for Development and Integration 2007-2013; the 2004 United Nations in Albania Common Country Assessment; the 2010 United Nations report on “The MDGs in Europe and Central Asia: Achievements, Challenges and the Way Forward”; the 2009 OECD report on “Sector Specific Sources of Competitiveness in the Western Balkans: Recommendations for a Regional Investment Strategy”; and the 2011 World Bank-Albania Partnership Program Snapshot.