Opening Albania to the World

Just opposite the Italian coast and between the famed beaches of Croatia and Greece, Albania is marketing itself as a unique and undiscovered destination in the Mediterranean. With beautiful coastlines, snow-capped mountains and stone castles steeped in history, this small country has much to offer, but it has yet to make it onto most people’s bucket list.

After 50 years of communist isolation and subsequent political and economic uncertainty, the country is only recently becoming a destination for international travelers. International tourism is a relatively new industry in Albania and many attractions are underdeveloped, hospitality services are often informal and road travel throughout the country can be slow and difficult. Furthermore, Albania is poorly connected to the region, with a limited number of direct flights and no charter airline services.

Yet the country is brimming with potential and the current government has identified tourism as a key sector for economic growth. “The tourism sector is perceived to be a priority for several different parts of the government,” explains Mejvis Kola (Bajollari), Minister Advisor on Tourism Issues. “It has great potential to attract foreign investments, create jobs, and support inclusive economic growth.”

CID is working with the Ministry of Urban Development and Tourism to understand the challenges unique to the tourism sector in Albania and to begin to develop tailored economic growth strategies. As part of this process they helped form a “Black Belt Team” (BBT) coordinated by Ms. Kola and comprised of key staff from within the Ministry. This team, in consultation with the private sector and with other ministries and government agencies, is currently developing an incentive package to promote growth and increase investment in tourism.

To better understand the Albanian context and bring insight from the region, the BBT has conducted research on how the country is positioned in relation to its regional peers. “Some preliminary data highlights infrastructure (air, ground, tourism) and the quality of human capital as the lowest ranking aspects of tourism in Albania,” explains Karina Baba, a Harvard master’s student working with CID’s Economic Growth in Albania project. To address these problems, the BBT is looking into ways to mobilize private and public investments in the sector and has proposed the inclusion of measures for establishing licensing, certification and training for tourism professionals and agencies into the tourism package.

While tourism is a priority across the government, the team has a difficult job. Tourism development is coordination intensive – it depends on simultaneous implementation of actions and policies across various parts of the government. Any fiscal incentives included in the package need to be coordinated with the Ministry of Finance, among others. Promoting destination-specific tourism development involves tackling the issue of unclear land ownership across the country (a legacy of the former communist system), which involves the Ministry of Defense, Ministry of Infrastructure, and more.   

The Tourism BBT is therefore in a crucial position to build communication and coordination across the government. The Ministry has already made significant progress by proposing a new Law of Tourism, which is currently pending approval, and the tourism development package aims to bring more opportunities for growth to the sector.

With 80 percent of hotels having only 20 to 40 rooms and unpaved roads leading to many of the country’s key attractions, Albania still has a long way to go to becoming a competitive tourism destination in the Balkans. However the potential for economic growth and employment through tourism is high. CID is supporting the Ministry’s efforts to tackle these challenges in collaboration with key government actors and ensure growth is sustainable over the long term.

About the author: Karen Vanderwillik is a summer intern for the Economic Growth in Albania project.

The building blocks of higher education reform

Albania is a relatively small country, with a population of 2.9 million, yet the country is home to 59 public and private universities. Higher education enrollment rates rose from 33% of the university-aged population in 2009 to 56% in 2012 (Source: World Bank), a high number even for European standards. CID is working with the Ministry of Education to understand what these numbers mean for the quality of the country’s education system, and what can be done to improve higher education going forward.

Education is fundamental to social and economic development, yet access and quality are ongoing issues around the world. Albania has a solid system of basic (primary and secondary) education, including a system of standardized testing to ensure ongoing monitoring and improvement of quality across the country. Unfortunately, the same standards for quality control have not been applied to higher education.

In 2005 the previous government administration began a campaign to increase the number of students enrolled in higher education throughout the country. The campaign aimed to align the country more closely with OECD rates of enrollment and also ensure higher education was available across the country, not just in the capital.

Universities began popping up across the country, many with less than 100 students, and some actually built illegally on unclaimed land. The number of students jumped from around 60-thousand in 2004-2005 to 160-thousand in 2011-2012 (Source: Albania Commission on Higher Education). In the same time period the number of higher education institutions rose from 14 to 59 (Source: Albania Commission on Higher Education). However, budget increases did not keep up with these student numbers. Current spending for higher education is around 0.5% of GDP, far below the OECD average of 1.6% (Source: OECD). Neighboring countries are spending around 4-5 times more per student than Albania.

“At a moment when they could have increased the quality of their education system to align more with European Union (EU) standards, the government instead focused on an increase in quantity of enrollment,” explains Evelien Blom, a Master’s student at the Kennedy School working with Albania’s Ministry of Education. “This led to a rapid deterioration in the quality of the existing higher education system.”

This rapid growth in enrollment created such a demand for instructors that institutions had to lower requirements for the academic staff. Furthermore, because many schools are small, professors often teach part-time at several institutions to earn an income, leaving little to no time for academic research and writing. Corruption and fraud have also become prevalent in the university system, with degrees practically available for purchase in some schools.

Higher education reform is therefore a top priority for the Ministry of Education in Albania. They are developing a reform agenda that will focus on increasing the quality of teaching and scientific research by introducing performance based and competitive funding for teaching and research, increasing the autonomy of institutions while also increasing control mechanisms and auditing, and introducing a scholarship system based on merit and needs of the student. With this reform, the Ministry aims to align the country’s universities closer to EU standards and improve their ability to access funding through the European Research Council (ERC), which Albania is part of.  

“The Deputy Minister is aware of the challenges and of what needs to be done,” says Blom, “but he also knows the ministry will need a lot of support to achieve meaningful reform.” For one, the reform agenda places a lot of emphasis on quality control, which the universities are expected to carry out. However they currently do not have the capacity to do so. Albania does have a public accreditation agency for higher education programs and degrees, but the agency has limited experience and cannot keep up with the speed at which new institutions and programs are opening up across the country. The Ministry is working to restructure this agency, including more emphasis on the collection and analysis of statistics, with managerial oversight from an agency in the UK.

The reform agenda also plans to incentivize reforms within universities through financing. The government plans to increase the budget for universities and divide it between teaching, research and infrastructure development, with performance indicators applied to each area. Blom is supporting the ministry to develop this budget; including determining how much funding should be allocated to each area and what indicators could be used to steer the universities.

As the Albanian economy grows and the country moves toward greater integration within the region, an educated and skilled workforce will be in high demand. The Ministry of Education’s reform agenda is moving in the country’s higher education system in the right direction, but it will be an uphill climb.

About the author: Karen Vanderwillik is a summer intern for the Economic Growth in Albania project.

The Road to Kosovo

Can the building of a highway facilitate regional integration? In the case of Albania and Kosovo, it might. “We hypothesize that the building of the Albania-Kosova highway may have been crucial in expanding Albania’s trade with Kosovo,” explained Maria Qazi, a Harvard master’s student working on the issue of Albania’s integration with Kosovo. And “it is generally accepted that greater regional integration with Kosovo and other neighboring states will help prepare Albania for eventual EU accession.”

Qazi recently joined HKS Professor Robert Lawrence and Research Fellow Ermal Frasheri on a visit to Kosovo to further understand the connections already established between the two countries and the ongoing barriers they face towards deeper integration. Their research will examine how bilateral integration with Kosovo can increase economic growth in Albania and also support eventual integration with the EU. As part of the overall Economic Growth in Albania project, CID researchers will examine the costs and benefits of strengthening connections in four key markets: goods, services, labor and capital.

Kosovo, a partially recognized state to the north of Albania is both small and landlocked, and would therefore benefit greatly from access to Albania’s markets and sea ports. It is currently Albania’s third largest trading partner, after Italy and Spain, and is actively pursuing further integration. Due to their shared language and culture, the Albanian government envisions a potential for both economic and cultural integration between the two countries.

The new highway to Kosovo has the potential not only to increase trade and cultural exchanges – nearly 1.5 million people cross the border with Kosovo every year in each direction – but could also help Albania’s ports to become regional ports and create a market for transit trade to Kosovo and beyond. However, despite greater physical connectivity through improved road access and a free trade agreement, there are still significant challenges that hinder integration.

a highway in Albania

During the recent visit to Kosovo and through meetings with public and private-sector stakeholders, Prof. Lawrence and his team have identified a significant gap between existing trade and integration policies and the reality on the ground. There are many hidden barriers that continue to limit the exchange of goods despite the free trade agreement. In particular, both countries continue to face technical barriers such as different regulatory standards on food exports. These barriers create significant price differentials and restrict imports of certain goods.

The movement of labor between Albania and Kosovo is also technically “free” – work permits are not required for nationals of either country. However in practice, Albania limits the number of foreign employees hired by local firms through a quota system. Also, foreign professional accreditations are generally not recognized. These practices limit further labor mobility, which could have the potential to address skills shortages and unemployment in both countries.

By evaluating the impacts of intensifying regional integration, CID hopes to understand and address some of the key limitations to growth the country is currently facing. This research could lay the groundwork for the creation of effective policies and mechanisms to improve real integration and reduce barriers. The road to Kosovo has paved the way for new growth opportunities in both countries, and it could become a significant step on the long road to greater regional integration for Albania.

About the author: Karen Vanderwillik is a summer intern for the Economic Growth in Albania project.

 

CID Thanked at World Bank Signing Ceremony

With soaring ceilings, bright red walls and large prints of historic Albanian maps, the “Map Room” of the Prime Minister’s office is an impressive sight. It was here that a small ceremony was held on May 30 for the official signing of a US $220 million loan agreement between the World Bank and the Government of Albania. The CID team working in Albania was invited to attend the ceremony along with the Council of Ministers, World Bank, Bank of Albania and representatives from the private sector.

“Today, by signing this agreement another page of a new chapter opens,” stated Albanian Prime Minister Edi Rama.

Albanian Prime Minister Edi Rama

The Prime Minister was quick to acknowledge that this agreement goes beyond his government. “Our merit,” he stated, “is that we have managed to build a team spirit with our partners.” He thanked the World Bank for making the agreement possible and went on to also thank Professor Ricardo Hausmann and his Harvard team, as well as the Bank of Albania and Albanian entrepreneurs for their part in bringing stability and growth to the country.

The agreement is significant for the government of Albania both for the recognition it shows of the economic reforms already set in place by the current government and for the confidence it places in this government’s ability to continue with its agenda of reform and growth over the coming years.

“The World Bank has ramped up its engagement in Albania commensurate with [Albania’s] reform effort,” stated Ms. Laura Tuck, World Bank Vice President for Europe and Central Asia. “We look at Albania and see a country with tremendous growth potential and a population determined to succeed.”

Ms. Tuck praised the great strides made thus far in Albania and the “decisive leadership” of the government, but noted the challenges the country still faces.

“The macro-fiscal stabilization which you have undertaken this year will need to be sustained over the medium-term,” she cautioned. “Key structural reforms will need to be pursued with vigor, especially deepening restructuring of the energy sector, creating a more attractive investment climate and enhancing the quality of public service delivery.”

For the Government of Albania, the agreement with the World Bank represents the spirit of openness and collaboration they are trying to build.

“For us this is an opportunity to govern together with all stakeholders and all other factors of development,” stated Prime Minister Rama. “The presence here in this room of many ministers, representatives of the World Bank and of the governor of the Bank of Albania, businessmen and bankers, but also of the newly-arrived team of master students of Harvard University … are an indicator of a new opening and attempt to make the next steps together in a country which, first of all needs a new culture of governance.”

Growth Lab interns at project kick-off ceremony

“Once more, I would like to thank our newest friends of Professor Hausmann’s team,” stated Prime Minister Rama in closing the ceremony, “who… have brought many terrific experiences from different countries where they have worked in key positions.”

About the author: Karen Vanderwillik is a summer intern for the Economic Growth in Albania project.

If you build it, they will come?

Not necessarily… Albania has had designated industrial zones for several years now, but they have yet to attract investors and many remain empty. The CID project in Albania is working to support an increase in the country’s exports, and developing industrial zones is a key strategy in this effort. CID is working with a team of experts from the government to determine why these zones have not attracted development and what measure can be taken to change this.

He (Charlie) Tian, one of the CID interns working in the Ministry of Economic Development, Trade and Entrepreneurship, recently visited the Spitalle Free Zone (photo below) in Durres. Measuring 500 hectares with potential to expand to 800 hectares, the site is a good size and ideally located next to the Port of Durres and a major highway that connects the area to the capital. The Port of Durres is an ideal location for an export-oriented industrial zone. It is the largest port of Albania and covers more than 80% of the country’s maritime transport.

ocean and skyline of Spitalle, Albania

Spitalle is also next to a small energy park that could potentially provide opportunities for synergy between the two sectors, however there is currently no infrastructure developed on the site. “The Spitalle Free Zone in Durres remains an almost empty piece of land,” notes Tian. “In China it only takes a couple months for empty land to develop into industrial zones but here negotiations with developers have been delayed due to ongoing discussions within the government regarding laws and incentives.”

The Ministry of Economic Development will meet with potential investors this week to discuss the development of this site. Some of the industries that this site has potential to support include:

“It could be the very first industrial park/free zone that functions in Albania,” says Tian, “and we are supporting the Ministry in preparation of the presentation for investors.”

One of the complications the government now faces in developing these zones is dealing with the numerous illegal constructions that are currently using the space. For example, in Spitalle a local university was been built right in the middle of the industrial zone land.

Spitalle University

It will take time and also compensation to remove illegal constructions from the land, which is one of the major concerns of potential investors. This is just one of the many challenges the CID team will be tackling along with the government of Albania in an effort to support the development and growth of these existing resources.

About the author: Karen Vanderwillik is a summer intern for the Economic Growth in Albania project.

CID meets Albania

Just off a busy street in the heart of downtown Tirana close to 20 Harvard students, faculty and staff gathered at the historic home of the former Albanian dictator, Enver Hoxha, for a welcome reception with H. E. Prime Minister Edi Rama and several Cabinet Ministers.

Albania PM Edi Rama and Harvard Prof. Ricardo Hausmann“[Hoxha] would have hated that you are here,” joked the Prime Minister in his welcoming speech. And rightly so, as Rama’s government is moving the country in a new direction from that of the former dictator and his communist party, and has sought the support of Harvard University to do so. The Harvard Kennedy School faculty and students are part of a large project that the Center for International Development (CID), with financial support from the Open Society Foundation, has undertaken to support economic growth in Albania.

Albania is one of the poorest countries in Europe but seems to be brimming with potential. Located on the Adriatic and Ionian Seas bordered by Montenegro, Kosovo, Macedonia and Greece, it remained in isolation during 46 years of communist rule. While democracy was established in 1991 the country has since faced severe problems of high unemployment, inadequate infrastructure and fiscal mismanagement. When Rama’s Socialist Party came to power on September 10, 2013, they came with a desire to implement strategic and innovative policies to address some of the country’s greatest challenges.

Immediately following the June 2013 parliamentary elections, Prime Minister Rama invited Prof. Ricardo Hausmann, Director of the Center for International Development, to Albania. He came with Research Fellows Brad Cunningham and José Ramón Morales to meet with the new Prime Minister and discuss some of the challenges facing the government as it took office. This initial meeting has developed into the largest initiative ever undertaken by CID with another government, involving:

After 10 years in the opposition, Rama’s party has a lot they want to accomplish, and this affiliation with Harvard aims to support them in their efforts.

The welcome reception provided the team with the opportunity to meet the Prime Minister in person, along with many of the key government ministers and high-level officials.

“It is rare that a team of foreign scholars is greeted at the highest political level,” noted Konstantine Kintsurashvili, who worked in Georgia as Deputy Finance Minister and is now a Master’s student at the Harvard Kennedy School. “Our welcome reception was hosted by H.E. Prime Minister of Albania with all the key economic portfolio ministers in attendance. I think this added a lot of enthusiasm to our summer engagement in Albania.”

This summer graduate students will spend two months working alongside counterparts in six different ministries, including Energy, Tourism, Agriculture, and Education.

“These are not just students,” explained Hausmann when introducing the group to the Prime Minister and government officials. “They are also professionals with years of experience prior to studying at Harvard.”

The students that make up “Team Albania” have worked in industrial policy, finance, engineering, agriculture, labor market policy and the education sector and have experience with the World Bank, the United Nations, international consulting firms and various Ministries within their own governments. They are an incredibly diverse team, coming from Asia, Europe, Latin America and the Middle East, and their combined experience in on-the-ground government implementation and rigorous academic analysis places them in a unique position to provide innovative advice and support to their Albanian counterparts.

“Innovation is a keyword for this government” stated an official from the Prime Minister’s office, and they hope the team from Harvard will bring new ideas and initiatives to the country. Under the leadership of Prof. Ricardo Hausmann and in collaboration with Harvard Kennedy School Faculty Matt Andrews, Robert Lawrence, Francisco Monaldi and Eduardo Lora, Harvard Business School Faculty Noel Maurer, Research Fellows Ljubica Nedelkoska, Brad Cunningham and José Ramón Morales, and external experts Paula Marra and Gustavo Grobocopatel (Los Grobo), the students will be working on some of the most critical issues facing the country. Already the Center for International Development has supported the government in stabilizing macroeconomic issues and they are now working on improving productivity in key sectors, including tourism, agriculture and light manufacturing, as well as improving the government’s access to resources through energy, oil and the bond market.

For their part, the students are eager to get started. At the reception many had the opportunity to speak one on one with ministers and deputy ministers to discuss the ways they may be able to contribute to project planning and implementation.

“[The Deputy Minister of the Economy] knows a lot about the subject we are working on,” commented Hanieh Mohammadi, a Master’s student at Harvard Kennedy School who already holds an MBA and has experience in the public and private sector. “They are very proactive and have achieved a lot already but they are looking for new perspectives.”

In speaking to the team at the welcome reception, the Prime Minister said: “I do know you will not be bored.” As the students begin to incorporate into the various ministries that are spread around Skanderbeg Square in downtown Tirana, they are quickly discovering both opportunities and challenges that they will face throughout what will likely be an interesting and educational summer.

About the author: Karen Vanderwillik is a summer intern for the Economic Growth in Albania project.