October 1 (SeeNews) - Albania, one of the poorest countries in Europe, is reducing poverty and developing a sustainable, effective and growing market economy but must continue its efforts to improve the business climate and tackle corruption, a World Bank official said.
“Albania has now achieved a level of per capita income that will allow it to be able to access international capital markets as a source of development finance. This is an important turning point for many countries […]. The World Bank is confident that the Albanian Government will continue its track record of sound macroeconomic management which has led to stable economic performance. The key challenge is to continue the programme of strengthening the business environment, improving governance and reducing corruption,” the World Bank country manager in Albania Camille Nuamah told SeeNews in a recent interview.
Albania is a lower middle income country with an estimated gross national income per capita of $2,970 (2,103 euro) in 2006. The country’s economy has been growing since 1999 at an average annual rate of 6.0%, despite the shocks of transition from a rigid communist system to a market economy and 1997 civil disturbances, when, after the collapse of a pyramid investment scheme, the country almost faced civil war. Albania kept average inflation very low at 2.4% in 2005, 2.36% in 2006 and targets this year inflation of 3.0%.
“Albania has achieved remarkable growth rates and commensurate poverty reduction over the last decade. Our recent Poverty Assessment, prepared with the Government, shows that the poverty headcount has declined by 7.0% between 2002 and 2005, with extreme poverty falling from 5.0% to 3.5%. This has been accomplished mainly on account of real growth in incomes on the order of between 17% and 19% over the same period. In fact, one quarter of the people who we counted as poor at the beginning of 2002 have been lifted from that poverty. So the remarkable achievement is that economic growth has been also poverty reducing and this is the main achievement from the perspective of the World Bank,” Nuamah said.
Last month, with the aim of improving the business climate, Albania started the so called “one-stop shop” project, promised by successive governments since the fall of communism. The project cuts the registration time for businesses from 47 days to just one. As another inducement to business, Albania will decrease corporate tax to 10% from the current 20% from next January.
“These reforms don’t have their impact overnight. So the challenge is implementation, implementation, and implementation to make sure that those reforms, some of which started with passing laws, will have a positive impact on private investments. As we look forward there are things to keep moving ahead so that the economy not only continues to grow at strong …., as in the past, but also to get private investments in the future,” Nuamah said.
WORLD BANK’S STRATEGY FOR ALBANIA
In January 2006, the World Bank approved the Country Assistance Strategy (CAS) for Albania, covering the period to 2009. The CAS programme seeks to support Albania’s efforts at improving governance, in promoting economic growth through support to the private sector and in improving public services delivery, particularly in the social sector. The International Development Association (IDA), the World Bank's soft-loan wing, is to support Albania with up to $86 million and the World Bank will provide up to $110 million through 2009.
“The World Bank has recently launched two new projects the Land Administration and Management Project and Transport Project. The Bank is also preparing a project to support construction, rehabilitation and maintenance of Feeder Roads for consideration by the Board of Executive Directors this fiscal year. Other projects for this year and the remainder of the CAS through the Bank’s fiscal year 2009 will depend on the outcomes of ongoing discussions under the CAS Progress Report which is a mid term review of the assistance strategy. The current CAS has programmed between $40 and $50 million per year”, Nuamah said.
- The Land Administration and Management Project
The total project cost is estimated at $55 million, where the World Bank finances $35 million, the Swedish International Development Agency (SIDA) – $4.5 million, Japan – $1.54 and the remainder comes from the Albanian central and local government.
The overall goal of the project is to improve land management in Albania, where there are still about 600,000 urban and 300,000 rural parcels not yet registered. Albania started in 1991 a process of restitution of properties and land to owners whose land was confiscated prior to 1945, but the process of registering the land ownership and the property transaction still is not closed. In the past few years there has also been a process of informal settlements and construction of illegal houses mainly near the biggest provincial towns, near the tourist zones on the Adriatic and the Ionian Sea and the capital Tirana. The still unresolved land ownership problem hampers also the flow of direct investments into the country. The World Bank’s projects aims at addressing the problems of uncontrolled urban growth, inadequate public infrastructure and the lack of governance and public services both at the central and local levels.
- The Transport Project
The Bank extended $25 million to finance the construction of a 26-kilometre section of a key transport corridor that will link Albania with the neighbouring U.N.-run southern Serbian province of Kosovo, namely the Milot-Rreshen section of the Durres-Kukes-Morine corridor.
The need for an adequate transport infrastructure grew dramatically after 1990 when Albania opened its borders and started the transition into a market oriented economy, movement within the country's borders grew and the flow of trade into and through Albania increased sharply. Also, the number of vehicles has grown at an annual average rate of 14% since 1999. The activities of the county’s biggest Adriatic port of Durres and the sole international Airport of Tirana TIA grew also dramatically. But despite the increasing demands the road infrastructure in Albania remains very poor with 14,500 kilometers of road, of which only 39% is paved.
ALBANIA’S ENERGY SECTOR
Albania's hydro resources generate around 95% of its electricity output. Extreme drought, the lack of proper investments in the outdated power plants and inadequate management, as well as the December 31 closure of two reactors at Bulgaria's Kozloduy nuclear plant, from which Albania was buying cheap electricity, caused drastic power cuts in Albania during the last year with up to 20 hour blackouts in the winter and up to 15 hours without electricity this summer. Another problem is that interconnections with neighbouring countries remain poor.
Albania does not have an interconnection with Bulgaria, so it must buy Bulgarian electricity through a transmission line crossing Greece, which increases the energy price. No important power generation plant has been built in the past 20 years, but the county is on the way to privatising the sole thermal power plant in Fier. A second thermal power plant is currently being scheduled to come on-line by May 2009.
Albania’s state run power utility KESH retains the monopoly on the energy market. The World Bank and the International Monetary Fund have repeatedly stressed the need for speeding up the liberalisation of the energy market and the privatisation of the distribution arm of KESH, so that the company can become financial stable and not depend so much on budget financing.
“The shortage of electricity is a significant constraint to growth and investment. A lot of businesses resort to individual power generators which can be very expensive to run and cause environmental harm as well. Production costs are affected and funds that could be used for productivity investments are diverted to securing relatively inefficient power supply. Beyond the business world, lack of electricity can have adverse impacts also on health and education in the country and delays poverty reduction,” Nuamah said.
Currently the World Bank’s private sector arm the International Finance Corporation (IFC) is preparing the due diligence on the KESH distribution arm privatisation.
“The due diligence is on-going and the target is for the privatisation process is to be completed in the second half of 2008. By the end of this calendar year it is expected that more specific information will be issued to the public.”
LABOUR MARKET
The unemployment rate in Albania is still high at 20%, according to official statistics. The remittances of those who sought work elsewhere make up some 19% of Albania’s GDP.
Currently Albania is making a strong attempt to strengthen its education and training systems in order to raise the skills of the labour force.
“There are many issues in terms of encouraging job creation by the private sector. One is that there are still relatively high labour taxes and second there are still large remittances flows. […] I am from Jamaica and remittances also make 15% of GDP. So we have in some respects by exporting labour raised the reservation of labour at home and as a result in order to be competitive we have to invest more in building skills. But on the other hand the remittances have been very important in terms of poverty reduction, by closing “the consumption gap”. And now it is important to transfer some of those remittance flows into productive investments.”
($=0.7081 euro)