Thank You, Interns – Now the Work Continues
By Tim O’Brien
The Center for International Development’s thirteen master’s level interns (Team Albania 2015) are returning to Cambridge this week to start the final year of their studies. In Tirana, they have left behind not only their reports and recommendations but living projects that are now tangible instruments for Albania’s economic transition. They take with them fond memories, lessons both large and small, and experiences in governance that will soon become learning tools for the larger community at Harvard’s Kennedy School of Government.
The lasting contribution of the interns’ work this summer can be best explained through the words of Prime Minister Edi Rama. At a July conference where the interns presented their work to the public, entitled “Sustaining Albania’s Economic Development: Growth Opportunities and Challenges,” Prime Minister Rama described the economic transition that his government is working to achieve and the vision behind its partnership with CID. He identified Albania’s previous economic model, quite accurately, as unsustainable, with previous growth relying too heavily on remittances and construction rather than on increases in knowledge and productivity. Further, he described it as non-inclusive and stated that development must mean more than just higher incomes for some people. He described the fundamental economic challenge for his government as supporting a transition to new sources of sustainable growth, and its partnership with CID as critical for both identifying these sources and figuring out how to support them in practice.
The Prime Minister specifically mentioned five sectors of central importance—energy, oil and minerals, agriculture and rural development, tourism, and manufacturing—all of which were areas of focus for one or more of this year’s interns. In energy, for example, he acknowledged CID’s role in helping Albania emerge from an energy crisis and move forward in a process of building “solid pillars” on which to sustain growth. This year’s interns contributed to the process by suggesting steps that would close the investment gap in electricity distribution, namely through efficiencies in public generation that could amount to $70 million annually and restructuring electricity tariffs in a way that is both fair and feasible. The team also provided technical analyses that will help the Ministry of Energy and Industry continue its transition to a market-oriented energy system with strong links to the rest of Europe.
On agriculture and rural development, the interns provided insightful research into the opportunities and constraints for Albania in aquaculture products, with a particular focus on high-value mussels. In doing so, the team brought together previously dispersed ideas from varied stakeholders and arrived at a unifying vision that could be used to strengthen collaboration across the sector. On tourism, the interns provided new analysis into why Albanian tourism remains “the best kept secret in Europe” and recommendations for addressing several underlying constraints to adaptive policymaking, which, if followed, could be major steps toward unleashing the sector’s potential to generate growth. On manufacturing and industrial development more broadly, the interns worked on several fronts. They worked with the Ministry of Economic Development, Trade and Entrepreneurship and the Albanian Investment Development Agency (AIDA) on preparing for the auction of Albania’s first Technical and Economic Development Areas (TEDAs); assessing current foreign direct investments and improving the setting for future ones; and studying whether conditions are right for the creation of an Albanian development bank.
The interns also worked on several other cross-cutting issues to support the transition to sustainable growth. Regarding fiscal matters, the interns worked closely with the Ministry of Finance to study policy instruments that would improve tax collection and budgetary planning. Looking outward, the interns worked with the Ministry of Foreign Affairs on issues that are economic as much as they are diplomatic. They studied the progress and evolution over time of regional integration projects, and they worked with local and international stakeholders to understand how Albania might better connect with its large diaspora to support domestic development. If the five sectors mentioned by the Prime Minister are those where “solid pillars” are being built, then efforts such as these are strengthening the foundation that holds the pillars in place.
The contributions by the interns, or “young experts” in the words of the Prime Minister, made for an especially productive summer. But CID’s collaboration with the Government of Albania will continue in full force. The project just celebrated the approval of a new grant by the Open Society Foundations, which will guarantee its continuation for the next two years, and CID remains especially committed to helping the Albanian government maintain macro-stability, improve sector-specific productivity and continue on its path to deeper regional integration.
Kickbacks, gambling, and match-fixing in football dwarf the FIFA scandal
Authors: Douglas Barrios, Matt Andrews, and Stuart Russell
The world of sports was taken by storm when a recent FBI probe led to the arrest of a series of high-ranking FIFA officials and the subsequent resignation of Sepp Blatter after winning re-election to a fifth four-year term as president of the organization.
The uproar is understandable; the accusations have been scandalous, their impact has been felt all around the globe and a never-ending series of notable sport controversies appear to be linked to the investigation.
More so, associated football (soccer) is widely perceived as the world’s most popular sport and the World Cup is its pinnacle event. It is revered by athletes, fans, cultural icons and even heads of state as it inspires dreams of glory, both for players and countries. Learning, or rather confirming, that some of those whom were supposed to serve as the guardians of the game, develop football for all and leverage the power of the sport to improve social outcomes have rather tarnished its legacy is disheartening, but it begs the question: What if this is merely one piece in a broader puzzle of illegal activity?
If one goes beyond the prestige associated to the World Cup, it quickly becomes evident that the financial size of FIFA, and its dealings in general, pale in comparison to the rest of organized football.
According to FIFA’s 2014 Financial Report the organization’s global revenue for the 2011-2014 period was 5.2 billion USD which was the highest in its history and 23.9% larger than the revenue for the previous 4-year cycle. However, this is only 41% of the revenues generated by the top 5 football leagues in Europe just in the 2012/2013 season1.
Revenues generated for World Cup hosts don’t hold up much better. While FIFA receives revenues from TV rights, marketing rights, hospitality rights, licensing rights and ticketing, host nations only reap revenues through taxes imposed to economic activities generated by the World Cup. In the case of the 2014 World Cup, the most optimistic estimates put the revenues generated by Brazil for hosting the event at 7.2 billion USD, while more moderate guesses places them at a mere 500 million USD.
More so, when we aggregate the yearly revenues of FIFA, UEFA and other Regional and National Associations and compare them with a broader definition of organized football, we find that they represent less than 15% of the global revenues directly associated with the sport2.
In this light, it becomes evident why the biggest scandal in FIFA history, centered on 151 million USD in kickbacks spanning a 24 year period, may not be as large as initially perceived, at least in financial terms, when compared to broader maladies in football.
For instance, as of 2013, Operation Soga, a tactical operation coordinated by INTERPOL to address illegal football gambling activities in Asia, had resulted in the closure of gambling dens which handled illegal bets worth more than 2 billion USD.
According to the World Lottery Association, an organization of state authorized lotteries, at least 90 billion euros are spent each year in illegitimate football betting, creating incentives for individuals outside the game, overseeing the game and leading the game to partake in a myriad of match fixing schemes. Perhaps even more damaging, these sorts of schemes appear to have been used by criminal organizations to launder 140 billion USD a year, creating a dangerous link between popular sporting activities and organized crime.
These kind of illegal activities represent an epidemic attacking the integrity of the game at its very core. A 2013 INTERPOL report on match-fixing highlighted that in just the period between June 1st 2012 and May 31st 2013 English-language open-source media reported match-fixing incidents in over 70 countries and across 6 continents.
This report also typified the type of matches usually targeted by match-fixers. They stated that despite the fact there may be higher returns to betting on top level competitions, matches in lower or semi-amateur leagues are usually targeted as ‘they are less likely to be monitored.’ Similarly, ‘friendly matches, often international, are particularly vulnerable, as they are less regulated than FIFA-sanctioned competitions.’
Kickbacks on marketing and TV rights, illegitimate betting and match-fixing don’t even encompass the whole array of illegal activity associated with organized football. Allegations of vote-rigging for host city selection and illicit reselling of tickets have also been rampant. Additionally other accusations of more subtle vote manipulation that have come to light, while potentially not illegal, are downright murky.
Public opinion is right to be appalled at the corrupt acts conducted by some at the very top of FIFA. Fans, players, and the history of the game deserve better, but if the concerns of sports fans and citizens in general are to be in the right place, we should interpret this most recent scandal as a symptom of a larger, deeper-rooted issue. The fact is that most of these scandals transcend the categorization of corruption in football, at any level, and truly reflect the pervasiveness of broader corrupt and criminal activities that merely utilize sports as a vehicle.
FIFA reform would be a step in addressing that issue. Yet safeguarding the integrity of the game, promoting healthy citizen engagement with sports and stopping these corrupt activities and criminal endeavors require a stronger and more proactive stance from national organizations, local organizations, and even from us, the spectators.
[1] In European soccer, a season is played between the fall of one year until the summer of the following year. We use this season as reference because financial data is publicly available for all top 5 leagues for this season and it represents a mid-point for the 4 year period of FIFA. Revenues for these leagues for the 2013/2014 season sat approximately at 15 billion USD.
[2] We conducted an attempt to reconstruct the annual revenues from organized soccer in different regions of the globe, including supranational organizations like FIFA and UEFA, CONCACAF, and CAF. The estimates for the European top leagues were informed by rigorous data from UEFA, FIFA, and independent studies by the firm Deloitte. Estimates for regions like Africa, Central and South America, Oceania and Asia were not as rigorous, given the lack of any organizations or processes to capture, audit and share data in these regions. Estimates in these cases were based on primary research into regional associations, national leagues, and even clubs, where data are also scarce and difficult to verify. All in all the revenue identified from these different sources of information add up to 33.5 billion dollars annually, 14% of which refers to FIFA, UEFA and other Regional and National Associations. Similarly an AT Kearney study estimates the size of global football at 35.3 billion dollars.
This research is part of an ongoing collaboration with the International Centre for Sport Security (ICSS). This blog highlights some of the findings of this work.
A Better FIFA Won’t Solve Football’s Ills
Authors: Stuart Russell, Matt Andrews and Douglas Barrios
Recent accusations of corruption at the Fédération Internationale de Football Association (FIFA) are, unfortunately, entirely unsurprising. Allegations of bad governance, bribery and fraud have surrounded the organization for years, but repeated calls for reform have generated limited change. While FIFA needs reform, many of the recent calls for change seem excessively narrow when one considers that the organization is only marginally important in the general governance of football (or soccer). One needs to look beyond FIFA to seriously correct the governance problems plaguing football and sports more generally.
At the most basic level, governance is about the exercise of authority by some agents on behalf of others to affect a certain result or achieve a particular impact. Football governance is complex. It involves many different authorizing agents distributed across multiple levels of government or parts of society, acting on behalf of different groups and with different ends in mind. Besides supranational entities like FIFA, there are many other authorizing agents: national entities (central governments and national football organizations), regional and municipal governments, football clubs and teams, associated sports-related firms (broadcasting corporations and sponsoring businesses), and more.
Improving football governance requires recognizing this complexity, which has implications for how we think of the calls to reform FIFA. First, we need to recognize that FIFA does have some authority in the sport and that the organization can be better structured to exercise that authority. Second, we need to acknowledge that FIFA’s actual power is rather limited and many of the governance ills in the game require reforms in other jurisdictions and entities. Third, we should accept the need to carefully re-examine the roles of different governance agents, especially more important, but lower-profile authorizing agents like national and municipal governments.
FIFA’s limitations
FIFA’s limits become plain when one scrutinizes the organization’s role and the tools at its disposal. To start, one might assume that FIFA controls the rules of football, but these standards are actually determined by the International Football Association Board (IFAB), an organization in which FIFA possesses some, but not complete, influence. One might also think that FIFA provides money to build the sport across the globe, especially in poor and emerging countries. However, FIFA’s Goal and Financial Assistance programs are actually quite limited in size and seem to be used less for large scale development and more as mechanisms for the FIFA leadership – and President Sepp Blatter in particular – to consolidate power. FIFA doles out financial assistance in return for pledges of support and votes in internal elections. The formula is simple pork-barrel politics, used by politicians all over the world to mobilize support, and seems to have been ineffective for actually developing the game.
The most important and obvious authorizing mechanism FIFA has is the power to award the rights to host the FIFA World Cup. However, despite the glitz and glamor that this mega-event attracts, the revenues FIFA derives from its premier championship pale in comparison to revenues in other parts of the football world.
During the period from 2011 to 2014, FIFA reported revenues of about $1.4 billion a year, with about 70% of these revenues flowing directly from the 2014 Brazil World Cup. In contrast, Deloitte’s Sports Business Group reports that the top five leagues in Europe generated over $15 billion in revenues in 2013/14. Likewise, the revenues of just the top three richest clubs in the 2013/2014 season (Real Madrid, Manchester United, and Bayern Munich) sum to more than the annual revenues of FIFA. If leveraged properly, the financial influence of Europe’s top leagues and clubs would clearly dwarf that of FIFA. The power, influence and authority of these leagues and their richest clubs are arguably much more important than that of FIFA.
Of course, FIFA’s limited authority shouldn’t undermine the public’s calls for change within the institution. This is especially important when one notes how much soft and manipulative power the organization seems to have had in the past. European leagues have not stood up as aggressively against FIFA as one might have expected, and national governments in Brazil and South Africa accepted a range of questionable demands from FIFA in order to get rights to host the World Cup. In many ways, FIFA has proved more effective at forcing governments to suspend laws and re-allocate resources than entities like the International Monetary Fund.
Given this, it is necessary to clarify the nature of FIFA as an authorizing agent in sports governance and ensure that it operates in a transparent and accountable manner. Right now, the organization operates, formally, as an “association” under Swiss law, but it acts in a de facto sense as an informal country club of elite soccer executives with minimal accountability. One way to fight backroom informalities would be to officially transform FIFA into a private business. If FIFA acted like a firm, the transparency demands of the market could force FIFA to become more accountable. Alternatively, FIFA could become quasi-governmental organization like the World Doping Agency, an institution partially composed of national governments. An intergovernmental structure could provide countries with direct oversight of the group’s actions.
Governments must do more
While these changes are needed, it is clear that reforms to the governance of football shouldn’t be limited to FIFA only. Put another way, if FIFA possesses limited authority over football, then which authorizing agents are actually relevant?
National governments play an important role, crafting sports-specific policies related to the incorporation of clubs and the regulation of leagues. Moreover, they enjoy broad authority over a range of policy domains that aren’t sports-specific but are still crucial for the sector to function. These include financing transportation systems, regulating the financial sector and labor markets, supervising television broadcasting, and structuring sound legal systems. Spectator sports behave like any other industry in that they rely heavily on the effectiveness of a national government’s authority in these arenas. When one compares FIFA’s authority with that of a national government, it is surprising that countries so often allow FIFA to bully or manipulate them. As agents possessing more significant direct authorities over football than FIFA itself, national governments are far too lenient with the organization and the sport in general. The ongoing American and Swiss investigations into FIFA’s corruption are steps in the right direction, but these inquiries should only be the beginning of national government efforts to use their clout and reform the system.
Regional or municipal administrations also play an important role with respect to the governance of football. At a most basic level, local governments control essential services like policing and utilities systems. These governments also control the use of land, perhaps the most important resource for sports in general (that are played in stadiums and on fields in front of crowds who need to be able to access the spaces via municipal infrastructure systems). Moreover, many municipalities either subsidize these stadiums or support the day-to-day operations of the teams in their jurisdiction. Some clubs, particularly those in central and eastern Europe or in the lower tiers of Europe’s bigger football leagues, operate like state-owned enterprises. Propped up by municipal assistance, these clubs face many of the problems associated with traditional state-owned enterprises: operating inefficiencies, corruption, and political interference. Municipal support often means these clubs have a soft budget constraint, given a reliance on city subsidies for financing rather than the private sector. Such dependence gives municipalities the opportunity to exert significant influence. Regional and municipal administrations need to be more strategic about how they use the influence of these authorizing mechanisms to control corruption and fight fraud in football.
Perhaps the most important lesson to be learned from the ongoing FIFA scandal is that football – and sports in general – has been given special treatment for too long. The Economist correctly diagnosed the problem in a recent article, observing that
Too often the authorities have shared the misconception that corruption in sport is essentially benign. Worried about appearing killjoys, they have let it be.
There is significant room for improvement amongst the many authorizing agents in football governance. Furthermore, international focus on the emerging FIFA scandal has masked ways in which other agents can effect positive change. National governments should crackdown on corruption in football just as they would in any other industry. As the American and Swiss governments have started to do, they should leverage their control of financial, broadcasting, and legal systems to improve the sector. Likewise, regional and municipal governments should consider ways to leverage the authorizing mechanisms under their control to reform football. Given the reliance of European clubs on local government support, these administrations have the power to force real reforms. Football and sports more broadly have many problems, only some of which can be solved through changes within FIFA. As for the rest, other authorizing agents – like national and municipal governments – ought to stop playing around and take the game of football more seriously.
This research is part of an ongoing collaboration with the International Centre for Sport Security (ICSS). This blog highlights some of the findings of this work.
Kicking Off the 2015 Summer Internship Program
By Ljubica Nedelkoska
For a second year in a row, the Center for International Development (CID) at Harvard University is organizing a 10-week summer internship program as a part of the Economic Growth in Albania project. Today, 13 master’s level students from Harvard University stepped into government and ministry offices in Tirana, Albania to work towards development goals. About half of them will work at the Ministry of Economy and Tourism. The other half will join the Ministry of Energy, the Ministry of Agriculture, the Ministry of Foreign Affairs and the Albanian Investment Development Agency (AIDA).
Albania has ample economic issues to address, some of which are structural in nature and others which are driven by the recent developments in the Eurozone. While still struggling to break with its socialist past and build good institutions, the European economic crisis took its toll on Albania. Almost one-third of the Albanian population lives in Greece and Italy today – migration has been a major mechanism through which Albania reduced unemployment, maintained wage growth and alleviated poverty through remittances. The European Union is also Albania’s largest foreign direct investment (FDI) and trading partner, and ultimately, is the community Albania aspires to join in the near future. The long-standing mismanagement of public funds is why the country is now undertaking a major fiscal consolidation. With little room for fiscal maneuvers, the government, supported by CID’s project, has turned to a strategy of strengthening the productive capabilities of export-generating industries as well as creating opportunities for FDI investments. Like last year, this year’s internship program will help us advance the implementation of this strategy.
The interns will work on key elements of the growth strategy. They will:
- Investigate the needs and means for financing large development projects in Albania, such as tourist destinations or large infrastructure.
- Work together with AIDA and help the agency prepare technical and economic development zones for FDI bids.
- Engage on the issue of deepening regional integration and others on a strategy for engaging the Albanian Diaspora in the development of the region.
- Help the Ministry of Agriculture study the value chains of certain agricultural products such as olive oil in order to learn about their production and market potential as well as hurdles.
- Address issues in the market for electricity and the oil exploration fields.
Most students have a combined background in economics and policy, and bring a wealth of knowledge and experience into the program. They come from ten different developed and developing countries spread across four continents.
Boston’s Olympic Bid: Leveraging the Non-Economic Gains
Author: Stuart Russell
Earlier this year, the United States Olympic Committee (USOC) named Boston as its candidate city for the 2024 Summer Olympic Games. Boston was chosen over other bids from Los Angeles, San Francisco, and Washington, D.C. It now joins Rome and Hamburg as the only cities to have officially submitted a bid for the 2024 Summer Games, although many other countries ranging from France to South Africa are also considering submitting cities. While the International Olympic Committee won’t select a host until 2017, supporters and critics of Boston’s candidacy have already made their voices heard. Newly elected Massachusetts Governor Charlie Baker hailed the selection of Boston as “an exciting opportunity to promote Massachusetts on the world stage.” However, critics like the group No Boston Olympics were more skeptical. Christopher Dempsey, the co-chair of the advocacy organization, told The Boston Globe that he was worried the city would now focus on the Olympics for the next two years instead of more important priorities like health care, education, and infrastructure.
The arguments of those opposing the candidacy are supported by the findings of a number of economists. The existing literature on sports mega-events like the Olympics, the FIFA World Cup, or the European soccer championships suggests there are relatively few positive economic benefits for the host city or country. Academics such as Rob Baade and Wolfgang Maennig contend that spending by locals during such events merely replaces spending those locals would do on different leisure activities or consumption goods. This sort of substitution effect limits the true additional spending that the events add to an economy. Other economists worry about the expensive and poorly-used sports infrastructure that often accompanies mega-events. Velodromes and archery stadiums, arenas which are filled during the Summer Olympics, are rarely used after the event. In light of such skepticism, why are these sporting events still so desirable? Why did San Francisco, Los Angeles, and Washington, D.C. battle Boston for the USOC’s nomination? Other academics suggest there could be less direct – but nonetheless still positive effects – of hosting mega-events.
In their article “The Olympic Effect,” Andrew K. Rose and Mark M. Spiegel propose one interesting impact. Rose and Spiegel argue that hosting mega-events, such as the Olympic Games may foster trade among countries. They demonstrate that countries with cities that have hosted the Summer Olympics benefit from an economically large and statistically significant increase in trade. In fact, they find that hosting the Summer Games is associated with a permanent 36% increase in exports following the event.1 Interestingly, they also find that the imports of host countries increase in addition to their exports. The findings suggest that the Winter Olympics don’t have the same export effect, a logical conclusion given that the Winter Games are hosted in smaller cities and attract less international attention. Hosting the World Cup, however, does have a very similar effect in both size and significance.
Perhaps the most interesting insight of the study is the finding that the increase in openness and trade extends to countries with unsuccessful bids for the Olympics. Simply bidding for the event brings the same trade benefit as hosting the event itself. Rose and Spiegel conclude that “bidding to host an international mega-event such as the Olympics is part of a costly strategy that signals trade liberalization and results in increased openness.”2 Even in light of uncertain direct economic benefits, politicians may still submit their city as a candidate for the Olympics with the hope of signaling to potential investors and business partners their intention to become more open to international trade.
Simon Kuper and Stefan Szymanski offer another thought-provoking argument in favor of hosting a mega-event like the Olympics. In their book Soccernomics, Kuper and Szymanski write that mega-events are desirable not for their economic appeal, but for the effect that they have on national happiness. They draw upon research that Szymanski conducted with Georgios Kavetos using European Commission survey data on happiness between 1974 and 2004.3 The researchers checked the happiness data’s correlation with eight major sporting events hosted in different European countries (the 1990 and 1998 World Cups and the 1980, 1984, 1988, 1996, and 2000 European championships). Interestingly, happiness in a given country wasn’t correlated with whether or not that country’s national team performed well. Instead, Szymanski and Kavetos observed a significant increase in happiness in a country after it hosted a mega-event. Happiness gains following the World Cup were robust, lasting two or three years after the event. Gains following the European championships were more fleeting, lasting only a year after they were finished. The increases in happiness that Kuper and Szymanski report are large. They compare the increase to “an unexpected increase in income that takes someone from the bottom half of the income distribution to the middle half.”4
The arguments above suggest that there might be more to hosting mega-events than direct economic gains. These benefits might be indirect in the sense that they are mediated by non-monetary outcomes. In fact, as Kuper and Szymanski suggest, the impacts might be entirely intangible in nature. Countries considering hosting these events should therefore be mindful of a wider array of potential benefits. The 2012 Summer Olympics in London are a good example of a mega-event that adopted this broader mindset. Part of London’s strategy focused on the legacy of the games with respect to four areas. Two of them, economic growth and East London regeneration, are related to traditional goals of hosting events. The other two, sports engagement and community engagement, are often overlooked by governments that usually focus on physical infrastructure and retail sales. Focusing their strategy on these four areas, London attempted to leverage the impact of the Olympics as much as possible. They created a number of innovative programs based on themes like sustainability, disability, equality, inclusion, and diversity. For instance, one creative program launched a business directory for firms that won sporting events contracts in order to allow these firms to secure more events-related business around the world. Another example is a program that offered volunteers who worked in the Games the opportunity to receive training as community organizers, as well as a fund for English youngsters to run their own volunteering projects inspired by the Olympics. While the precise impact of these programs is still being evaluated, the broader mindset that the London organizers used is potentially a very important strategy for future mega-events.
Although hosting a mega-event remains a controversial topic, some important impacts of hosting are often overlooked and left out of the public dialogue. Moreover, ensuring that the event has a successful, long-lasting legacy could hinge on the capability of policymakers to craft creative programs that effectively capture these impacts. Officials should therefore think beyond first-order, highly visible outcomes. Accordingly, if it is selected by the IOC, Boston should seek to identify a range of positive impacts associated with hosting the Summer Games. The city could utilize the region’s considerable human capital and innovation capacity to develop policies that subsequently leverage these benefits. The research we are conducting hopes to shed further light on these potential impacts and how to best take advantage of them.
This research is part of an ongoing collaboration with the International Centre for Sport Security (ICSS). This blog highlights some of the findings of this work.
[1] Andrew K. Rose and Mark M. Spiegel, “The Olympic Effect,” The Economic Journal 121 (2011): 658.
[2] Rose and Spiegel, “The Olympic Effect,” 654.
[3] Simon Kuper and Stefan Szymanski, Soccernomics (New York: Nation Books, 2009), 290.
[4] Kuper and Szymanski, Soccernomics, 291.
Understanding the Economics of Sport through the Industry Space Methodology
The Center for International Development at Harvard University in cooperation with Anet Weterings from the PBL Netherlands Environmental Assessment Agency is preparing a publication which investigates the sports cluster in the industry space. This blog highlights some of the findings of this study. This research is part of an ongoing collaboration with the International Centre for Sport Security (ICSS).
Any casual observer of the Olympics, the World Cup, or European professional soccer knows that the world of sport is big business. Expensive stadiums and massive player transfer fees suggest that there is an economic dimension to sport. However, the exact mechanisms through which sport influences other sectors in the broader economy are less clear. The industry space is one technique through which we can better understand these connections. It is a methodology that illustrates the industrial structure of a given geographic area by emphasizing the linkages between economic activities. Economic sectors are connected in the industry space if they possess similar characteristics such as human capital, natural resources, or value chain linkages. If we can locate sport within the industry space, we can hope to better understand how the economic aspects of sport spillover to other sectors.
Figure 1: Sports sectors in the industry space (Click all to enlarge)
Source: Data from statistics Netherlands, edited by PBL. Own calculations of the industry space.
To illustrate the industry space technique, we used data from the Netherlands from 2001-2008 on the number of people employed in 826 different economic activities and the number of employees switching jobs between these activities. We utilize Dutch data due to its greater level of detail in the classification of sports-related activities. Each of these economic activities is represented by a node depicted in the industry space in Figure 1. The network in Figure 1 is constructed based on labor flows between economic sectors such that the links between the nodes demonstrate the skill relatedness between these economic activities. The full network has many more links amongst the nodes, but, for visualization purposes, we only show the strongest 2,478 linkages, which is three times the number of the nodes in the network. The size of the node is proportional to the employment in that sector and the color of the node represents a cluster or community of economic sectors. These communities are collections of sectors with a high level of mutual labor flows. They are constructed using community detection algorithms from social network science (here we use the Fast & Greedy algorithm). Workers are more likely to move to sectors within the same community because these industries require similar skills. It is comparatively more difficult for a worker to jump to a sector outside of his or her community because that sector likely requires skills that the worker doesn’t already possess.
Of the 826 activities discernible in the data, 28 activities pertain to sport in the industrial classification that we use (SBI93, revision 2003). In Figure 1, sports-related activities have a triangular shape to distinguish them from the rest of the economic activities. The sports activities can be placed in 4 categories. First, 23 of the activities pertain to sports clubs such as soccer, tennis, or track and field. Second, 5 activities relate to sports facilities such as swimming pools, gyms, or sports halls. Third, 3 activities pertain to support organizations like fan associations. The final category includes professional sportsmen and sports instructors. The industry space depicted in Figure 1 reveals a significant amount of information about the role of these sports-related activities in the broader Dutch economy.
Figure 2: Sports clusters
To start, the industry space demonstrates how sports co-occur or group with other industries. In particular, two communities stand out when it comes to sports. First, 21 of the 28 sports-related activities cluster in a single community of red nodes depicted in Figure 2, confirming that, relative to all other economic activities, sports share a very similar skills base. Sports-related activities in the community, which are represented by the triangular nodes, include soccer, swimming pools, and motor sports. Besides these activities, the community primarily consists of health care, social care, and educational services such as hospitals, child care, and universities.
The purple nodes designate a second community that contains 4 other sports-related activities: winter sports, billiards, board games and puzzles, and other outdoor sports. These activities cluster with transportation, recreation, and accommodation activities like restaurants, cafeterias, and railways. The remaining 3 sports sectors, which do not belong to either of these two communities, belong to other clusters. For instance, equestrian activity is more closely linked to agriculture and farming than to other sports and is therefore part of the agricultural products community.
Figure 3: Swimming – an example of sports sector that mainly connects to its own cluster
In addition to these clusters, the industry space also reveals interesting information about the different types of connections that sports-related activities have. Many sports-related activities are poorly connected to the broader economy and link to very few other nodes. Cycling, for instance, connects to only two other economic sectors once we selected for the top 5 percent of the strongest links from the full network. At the same level of link selection, some sports-related activities are connected to many other nodes, but the sectors to which they link are mostly only other sports. Swimming is an excellent example. It has linkages to swimming pools, sports halls, martial arts, and other advisory sport groups (Figure 3). On the other hand, other sports activities may not be densely connected, but the connections that they do have are diverse and link them to several different types of communities. Motorsports, for example, relates to four different communities and has connections with a diverse array of nodes that include car repair, hotel restaurants, and physical well-being activities (Figure 4).
Figure 4: Motorsports – an example of sports sector with cross-cluster connections
Soccer is an example of a sports-related activity with linkages that are both numerous and diverse. Figure 5 depicts a visualization of soccer’s connections in the industry space. The figure zooms in on soccer’s node and shows the links it shares with other economic activities. The linkages are grouped by community and, within each community, the strength of the linkages decreases as one proceeds clockwise around the circle. The strongest connections are shown at the top of the ring. Unsurprisingly, employees in the soccer sector often work in other sports-related activities such as professional sportsmen, sports instructors, and sports facilities. However, the ring also shows that employees in the soccer sector work in numerous other communities. These communities include sectors such as newspaper publishing, textile sales, and building cleaning. This demonstrates that relatedness often cuts across clusters. While sports-related activities like soccer may be primarily linked to other sports, they also share many connections with the broader economy.
Figure 5: Soccer – an example of densely interlinked sports sector with connections to many clusters
Analyzing the location of sport in the industry space is important because it helps us understand how sport affects other economic sectors. When a sports sector experiences an economic shock such as a mega-event like the World Cup, the industry space can help predict which related sectors will be influenced. For instance, increased labor demand in a sports industry may result in labor poaching and increased wages in a connected sector. Which nodes and which communities are affected by these spillovers? How strong must the connections between sectors be for these spillover effects to occur? Alternatively, if a government wants to create a sports industry, the industry space can help identify what related industries are helpful for the establishment of a robust sports sector. Are medical activities helpful complements of a strong sports sector? If not, are education activities more useful? As our research on sport and economic complexity progresses, we hope to address many of these research questions.
About the authors: Ljubica Nedelkoska is a Research Fellow with CID’s Growth Lab and Stuart Russell is a Program Assistant at CID.
Taking a closer look at Albanian agriculture
From above, Albania is a picturesque scene of patchwork farms framed by mountain ranges, lakes and turquoise seas. Look a little closer and you may see a few greenhouses filling the narrow plots of land, goats being herded down dirt roads and chickens scattered across barnyards. A little closer and you may see a few larger fish farms and barns. However, across the country Albanian farming is predominantly small scale.
Agricultural production and export in Albania has been constrained by small and geographically fragmented plot sizes, unclear land titles resulting from the communist-era cooperative systems and limited capacity for technological development. Over half the population of Albania is employed in the agriculture sector yet it makes up only 16-18 percent of the country’s GDP. For small scale farmers, yields are low and input costs are high. Most agricultural inputs are imported, including tractors, fertilizers, and even chicks.
This summer, Koji Ito and Boban Paul, MPA/ID students at the Harvard Kennedy School, have been working with the Albanian Ministry of Agriculture and CID to study the value chains for poultry and medicinal and aromatic plants (MAPs), respectively. They are working with the government and local academics to study constraints and bottlenecks in these sectors and to develop potential policy strategies that could increase productivity. But to really understand the dynamics of agriculture in Albania, they needed to take a much closer look.
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Koji Ito has been travelling around rural Albania with a counterpart from the Agriculture Ministry and two students from the Agricultural University of Tirana in an effort to interview poultry farmers and retailers first-hand and inquire into the production system, for which little information was available. “At first some farmers were not willing to talk to us,” says Ito, who explained that a good number of businesses operate outside the scope of the government and may prefer to be left untouched. “But others were very open and even interested in what this research is going to reveal about their industry.”
The poultry sector picked up quickly and well in the post-communism transition years; however, Albania still imports more than half of chicken meat on the local market. Most farmers rear chickens for subsistence purposes with minimal technology, and only a handful produce intensively to fill large urban markets. The government is considering potential policies for supporting growth in domestic poultry production, so as to reduce dependence on imports.
For medicinal and aromatic plants however, the focus is on increasing exports. Farmers and exporters of MAPs, particularly sage and lavender, feel there is potential for growth in this sector due to international demand. Boban Paul, along with local students from Agriculture University of Tirana, has been visiting MAPs farms primarily in Northern Albania, at the foothills of the Albanian Alps. By going into the fields and actually seeing how plants are harvested, they found that current production practices are actually not sustainable. “The farmers realize that some of the harvesting practices are leading to a scarcity of MAPs,” explains Boban Paul, “but they are not yet doing anything to change this.”
In Northern Albania, medicinal and aromatic plant farming makes up close to 35 percent of household income and about 18 percent of agricultural exports. However a lack of a quality controls and certification processes limits the market price Albanian producers can fetch for their plants. “Some exporters sell to Germany where they suspect the plants go through additional processing and quality management and are probably re-exported to the United States at a higher price,” explains Paul.
The field research the students are undertaking will provide the Ministry of Agriculture with valuable data on the characteristics of Albanian agriculture at all stages of their value chains. Some of what they have discovered supports what the government already suspected, but they have also discovered interesting and important nuances about these sectors that will help guide policy decisions.
Field work can be difficult and time-consuming, especially when dealing with rough roads and language barriers, but it will help provide the Ministry with a much clearer picture of what the agriculture sector really looks like. For the students, the opportunity to meet with local Albanian farmers and producers has been informative and at times entertaining: “During one field visit we asked a cultivator what he pays for fertilizer,” recounts Paul, “and the farmer answered ‘It depends on the cow!’”
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.
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.
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.”
“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.
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:
- Energy production: Energy product exports are increasing quickly and there is potential for more mineral manufacturing and refining.
- Fashion (textiles and footwear) production: Albania has a significant cost advantage in terms of human capital. Factories already exist around Tirana and Durres in this sector, but coordination could be improved by clustering them.
- Services and Trade industry: Importers and exporters could set up in the free zone to avoid tariffs and customs payments and therefore increase efficiency.
“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.
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.